Jack Townsend offers this blog on Federal Tax Crimes principally for tax professionals and tax students. It is not directed to lay readers -- such as persons who are potentially subject to civil and criminal tax or related consequences. LAY READERS SHOULD READ THE PAGE IN THE RIGHT HAND COLUMN TITLED LAY READER LIMITATIONS. Thank you.

Wednesday, September 14, 2011

Experiences Inside OVDP / OVDI #1 (9/14/11)

This blog is created for users to share, by their comments, their experiences inside the OVDP / OVDI programs. I know the IRS touts that there is little flexibility inside these iterations of the voluntary disclosure program, and that has concerned the practitioner and taxpayer communities. However, I suspect that, in extreme cases, accommodations may be made inside the program without the necessity of opting out to obtain the just and fair result.

So, I encourage readers to post their experiences here to help persons in the program, particularly those who are not represented, to take affirmative steps, to avoid pitfalls or just to obtain some comfort from others' experiences. Or even some amusing anecdotes "inside the program," if any, could be helpful.

Thanks,

Jack Townsend

Note to Readers: Please post new comments to the #2 version of this blog, titled Experiences Inside OVDP / OVDI #2 (4/4/12), here. For context, if you are referring to comments below (i.e., on the #1 version of the blog), please copy and paste the content you reference into the new comment on the #2 version so that readers will understand your comment.

305 comments:

My complete package was lost and I had to resend it. I called the hotline who was able to verify that the check has been applied to the various years. They also told me that if I have delivery confirmation then they will accept the package even if the first one was lost by the Austin office.

To make sure your package is complete, just call hotline, and they will tell you the status of your package. In my case, I have never heard from them back (no agent assigned) but the hotline told me "your package is in the pipeline for processing -- that means the pacakge was considered complete

Since I did not report any undistributed income from my RRSP which I also included in OVDI, so I am more hopeful that they would take my late tax deferral election -- otherwise, they would say "your package is not complete because you did not report income from your RRSP".

How did you find out that they lost the package? Are you the same person who got a letter from IRS saying that "your complete package has not been received" - one of the other people who posted on this blog also had the same experience. It is ridiculous for the IRS to lose your packge.

My comments about the OVDP have mostly been posted previously on your TAS thread of August 29th.

I just have two additional comments regarding the entire process.

One relates to how much all of this has impacted me psychologically after a 2 year struggle to come up with a reasonable settlement. Is there such a thing as OVDP PTSD? I think there is! :)

The other relates to the closing 906 form and penalty payment reconciliation.

First. In the OVDP, the IRS wanted an outrageous $172K, as they were including my home in the highest aggregate penalty calculation. That put me into an incredibly depressed state when no discretion was allowed to adjust this ridiculous penalty. When I finally got relief via the TAS, it was lowered to something which I could live with at $25K. Now, I really think that a letter admonishing me to "Go and sin no more" was more appropriate. It would have accomplished a compliance objective, if that was really the goal of this process, but after 2 years, you finally have to make a business decision and try to move on.

I was very thankful for the TAS intercession, as the Opt Out did not look hopeful without their advocacy. Maybe Opt Out clarity will get better for those entering the OVDI right now.

Now that the “Rush of Relief” has passed, I have found that "moving on", is very difficult. The unfairness, and injustice of all this continues to bounce around in your head. When you are on the receiving end of unintended consequences of flawed Statutes, you find yourself reassessing every Politician’s claims about any legislation. The reality is that many statutes come buried within other Bills, and you have no idea that they are there and how they may impact you. Take FATCA which is buried within a bill called HIRE (Hiring Incentives to Restore Employment) bill signed into law by President Obama in March 2010. Did you hear about FATCA in the media when they reported on HIRE? Neither did I, and it is very troubling.

Finding a means, to just forget this whole experience, and live a new compliant life, is easier to say then do. My feeling is the Examiners (and by extension the IRS leaders) have no idea or real empathy on how their process impacts a normal middle class Minnow, and what a drain it is on productive human endeavors. It has a huge personal cost, along with the loss of LCUs. (Life Credit Units). It does not show up on any FBAR penalty reconciliation spread sheet!

I am trying to follow the final advice from my “Examinator” who casually says now, “Oh you shouldn’t have even been in this OVDP in the first place. You are done now, so just let go.”

No big deal! Right?! So why do I feel like an abused spouse? I guess I am getting release by adding my blog comments here! Thanks for the therapy outlet Jack!

Secondly, when it came to the final 906, and reconciliation, the IRS is quite happy to produce a document that is factually incorrect, but doesn't want to change it. Apparently, in this case, close is good enough. It isn't material that it be precise. Suddenly it doesn't matter as much as closing the file. Now, I would have said the FBAR requirement materially doesn't matter either!! :)

So, in the end, I just had to pull a "W" impersonation of a 'Signing Statement' by writing an accompanying letter pointing out the errors, and I am not bound by them. I signed the document anyway just to bring closure to the whole darn process.

Now, we await the actual reconciliation, as the IRS owes me money. I had over paid taxes, and it should have stopped the interest accruals from running, but I can see that will still be an issue. My Examiner’s draft reconciliation is in error, but she is anxious to let some other IRS department deal with this. It is not her problem anymore. She says she will help, if I have problems. I believe she will try, but I predict, I will still be struggling with this 6 months from now. I hope to be proved wrong.

1) Am I correct in assuming your penalty was 5K per year, for 5 years = 25K ? You said earlier it was per year. If so, was it because your accounts were in the 50K -250K range (under IRM mitigation guidelines for 'Non Willful violation range 2' ? 2) Did the examiner make some kind of willfulness judgement, and if so do you know what criteria were used ? Were you filing US tax returns in the years in question ?

"Now that the “Rush of Relief” has passed, I have found that "moving on", is very difficult...."

Just Me, I empathize with this completely. One thing that seems to be overlooked in all of this mess is how much the experience changes you *forever*.

I was forced to permanently, abruptly, and reluctantly disconnect from the US some years ago in response to the exit tax, so have the relative comfort of watching this FBAR jihad unfold from afar (and believe me, watching the IRS from a foreign shore is much, much better than watching it from within the US). Even so, I too have trouble moving on, evidenced by the fact that I read this blog. And like you, my experience has left me soured; at a stroke, the US exit tax turned a keen and willing immigrant into the US into a bitter and disaffected emigrant out of the US. I now refuse to travel to or invest in the US under any circumstances, ever again. And I find myself distrusting any government of any stripe to look after my property rights in a way I never did before, a condition I suspect may be permanent. Sad, but I think perhaps natural after such a massive betrayal.

The one thing I can say for sure is that despite the bitterness I'm genuinely much happier to not reside in the US, not to be a US citizen, and to know that I will not be yoked by the IRS for the rest of my natural life. Seen from outside with a particular perspective, the US now seems to resemble the old East Germany minus only the barbed wire.

M...LCUs, is just my short hand way at looking at years, months, days, hours I have left to live. I look at life as a Credit that has been given me in the DNA lottery, and I am slowly using them up and expending them on IRS issues....

1. Maybe surprisingly, but given the wide discretion the IRS has, maybe not; it had less to do with the account amounts as listed in the IRM, which after all, are just guidelines. I was higher in total than the range you mention with my normal checking and savings overseas where I was living. Nothing exotic. And... Yes, the negotiated penalty that the TAS asserted and was accepted by the Examiner's management was a $5k penalty per year for unified FBAR penalty. IE, I had multiple accounts as you will do if you have simple CDs, etc.

2. Willfulness issue. Through out the entire OVDP, I strongly asserted the non willful nature of my FBAR failings, but the Examiner and her Technical Adviser were pretty narrowly constrained and asserted that I was willful. In my many appeals, I must have written a book to them, with all the arguments I could honestly make and took multiple approaches to appeal to reason as to why I was not willful. I could accept that I was negligent, benignly so, and not paying attention, stupid, ignorant, etc... but willful, I would never accept that finding! If I was really a willful cheat trying to hide something, I would have never joined the OVDP in the first place, but once I had knowledge of the FBAR failures, I felt I had to join, as to do otherwise would have confirmed what I was now arguing against. A catch 22, sort of.

Anyway, the best I could get out of the Examiner was an admission that my willfulness was lesser degree than the Whale targets of the OVDP and I didn't really belong in the OVDP in the first place, but willful just the same. This all centered on a check mark on the Sched B. This willfulness POV, of the IRS, is like a religion to them, and very hard to break through with an argument as to why this God of theirs is a false one! :)

Ultimately, it was that failure to reach accommodation with the Examiner that caused me to conclude I could not chance the Opt Out, as the Examiner's summary to a Management committee trumps mine. So, that is why I went to the TAS. They agreed with me, and asserted my non willfulness, in their TAO, and my 906 closing was a "non willful" finding.

Like I have said, I would have been happier with a "Go and Sin no more" letter, given the accuracy and interest penalties I had already paid, but ultimately after 23 months, you cut your loses and settle. The TAS thought, given the mindset, that this settlement was best outcome we could hope for, and in the end, I agreed with their analysis. Given the FBAR statute hammer, they are not inclined to give you the special Geithner treatment. When you stare at $172K long enough, $25K looks like a bargain.

Boy, do I understand what you are saying. It does change you forever. My relationship with the US government has definitely taken a hit. This experience, plus just living outside the country and looking back, suddenly things don't look so welcoming anymore.

I actually advise others who think they would like to immigrate to America to reconsider if they have any money or assets at all, as once you become a US person, the US tax system has dominion over you wherever you are in the universe. Also, with the coming of FATCA, having a US passport is becoming a greater liability. My wife who is a Green card holder doesn't like to travel back to the States alone anymore, as she is regularly hassled when coming through Immigration. I have French and German friends who now refuse to touch down on the US shore even when in transit from Europe to New Zealand, this because of all the security issues. I hate feeling my attitude turn negative against the country of my birth, but I now find myself looking at these web sites and mulling it over.

Well, do as I do. I email every reporter to counter their characterizations. They are just carrying the water for the IRS without much examination.

I encourage them to dig deeper for the story of unintended consequences and give them many resources for leads.

This AP story was the most egregiousness of the lot that came out yesterday. NYTs, WSJ, Bloomberg, and others have written less inflammatory characterizations, but they are all just repeating what Shulman said, with hardly a serious question.

Unfortunately there isn't a group with sufficient standing to hold a press conference and issue a release to counter the IRS narrative. So, you have to take some individual action. Probably won't work, but nothing ventured, nothing gained.

Thank you for sharing. I have a question. Seeing what happened to you, would you go through the OVDP the same way, or would you do a quiet disclosure, or just report account info from now on, or report nothing, or close the accounts?

I am just curious. You mentioned that the examiner strongly suggested you "opt-out" since you did not seem guilty of anything. Why did you not "opt-out" then? Was it fear of an even harsher prosecution if discovered/audited?

Would I or wouldn't I? Boy, that is a tough question. Knowing what I know now about the anxiety, stress, and all the LCUs this would take, would I still make the same decision? All of those considerations you mention certainly crossed my mind, although I probably did not fully weigh them as I would now.

You probably want just a yes or no answer, but…. to be honest. I am not totally sure. I think the same thought process I had then, would still compel me to enter. I might feel differently, if I hadn't, in the end got some relief via the good graces of the TAS.

My decision, with a strong counter argument from my green card carrying Aussie wife who still is irate with all of these IRS regs she just doesn’t understand, all surround the willfulness issue. Up to the point, I heard a story on NPR, which caused me to ask an attorney what this was all about, I was totally oblivious of the FBAR and foreign account requirements.

That was the beginning of my quick education on these strange incomprehensible issues. It was like a foreign language emersion session for someone who had never been on the IRS.gov website in their life. I was very limited in the time left to decide what to do. I can't say I fully comprehended all the FAQs, or could make sense of the regulations. I was lost in a fog of hurried efforts to gather all the info required for the OVDP and meet the fast approaching deadline. I was here in the States on a family visit, and all my records were back home. It was not an easy task. My family wondered what the hell I was doing locked in a bedroom for 2 weeks. They still don’t know. I look back now, and am somewhat amazed that I managed it, given the time I had from recognition of the problem to meeting the deadline date. That time pressure may have detracted from sober considerations of risk vs reward your question implies.

However, I still come back to the fact, that at the moment of the discovery of my non compliance, I now knew! I could not escape that knowledge. To deliberately decide not to disclose would have been a willful act, and given my risk tolerances, the consequences of non disclosure seemed too uncertain. To me, the FAQ 10 was a veiled threat that a QD was not an option, although for the life of me, I did not understand why a QD wouldn't be sufficient for someone like myself.

So, FAQ 10 actually forced the decision on me, as at some level, it felt that it was not a Voluntary decision anymore. I had to disclose. I laughed at my Examiner when she implied that I should just accept the OVDP penalty, because I joined voluntarily. I didn’t have to join, she said! Geeze! We argued quite a bit about the definition of Voluntary. There is really nothing voluntary about it if you were going to be a compliant and lawful tax payer. Once you have decided not to join, you have made a voluntary decision also, and you have no argument in the future for non willful behavior, or so it seemed to me. So, I joined.

So, looking back on it, I was naive, for sure. Beyond naïve, actually. I assumed that logic would prevail and penalties would not be as severe as they said they would be. I thought a reasoned letter to Shulman would certainly redirect my application to another more sympathetic track I figured once they saw that I was not the Target of the program they could not possibly impose such a penalty. Funny to hear me say that now. I learned the meaning of rigidity and non discretion!! I way under estimated the inability of the bureaucracy to change its policies or direction once they were set and stream rolling along. And of course, I way underestimated the personal toll it would take on my psychological state of mind. I am still recovering. But it is over, and I can look forward now to the LCUs I have left. I have now turned my attention to choosing the epitaph for my tombstone. Four words come to mind. "He was FBAR Compliant" :)

Sorry, I didn’t answer your question in my other lengthy reply… “You mentioned that the examiner strongly suggested you "opt-out" since you did not seem guilty of anything. Why did you not "opt-out" then? Was it fear of an even harsher prosecution if discovered/audited?”

Simply answer. I wasn't afraid of a civil audit. She already had everything but my blood type, and there were no other issues to discover, but I was afraid of a harsher FBAR penalty not knowing what IRM discretion would apply in the Opt Out. More nuanced answer with detail below.

When my examiner first mentioned that I should consider an Opt Out, my response was, “Was that even possible? I didn’t know that was something I could do.” We were at an impasse by then with her asserting a penalty which wrapped my house value into the calculation. That was a surprise to me, as I missed that FAQ on assets in my hurry to apply to the program initially. $172K was more than ridiculous, it was Auzzie OVER THE TOP. She knew that wasn’t fair or appropriate, but her technical advisor said she had to do it.

So, when I asked, “What does Opt Out mean?” That is when she went blank, as she did not know. There was no Opt Out procedure, and so I said, “How can I leap off a diving board into murky waters full of crocodiles with no visibility about what an Opt Out means?”

Further, I told her I was not going to sign a 906 (which she had sent me) and pay $172K without knowing what the Opt Out procedures were, and until I get them, I am doing nothing. I put that all in writing, and let her know I was considering the possibility, but couldn’t do anything until there was something officially concrete in writing as to what the procedure would mean.

She strongly advised that I get professional advice on making that decision, as she could not advise me what to do. I appreciated that, and understood that it was not her role to tell me what to do. Consequently, in the intervening time, I did just that. Here is where a professional opinion has great value and worth the money spent even if you don't follow them. You need a good trained brain to help you bounce around options :)

Once the Opt Out procedures were posted June 1st, I read them multiple times and realized that if I Opted Out, this would put additional work on her to summarize for the Management Committee her recommendations. I knew we were at odds about what she considered ‘willful’, and I did not stand much of a chance of a good outcome if we were making opposing assertions. I asked her directly what is she going to report, if I Opted Out? That is when the line was drawn, with her insisting that I was willful, at some degree less than the cheats she opined, but in her mind, still willful.

Then she started telling me that according to her technical advisor, if I Opted Out, my high aggregate balance per year would double count the money in my savings accounts if I had transferred money between them in the same year. When you began to add that all up, coupled with it the irrevocability of the decision, then apply the letter of the mitigation guidelines she said I should use for a willful finding, my penalties were running into millions! This was at the ABSURD level now. It was then I knew we were beyond all reason or hope, and at total impasse. It was still cordial between us, but we were firmly in disagreement. She sent me the form 4728 Opt Out Status letter that started my 20 day count down to Opt Out or be kicked out. That is when I went outside the system to appeal to the TAS. I think you know the rest of the story from here.

You ask… “Does the examiner inside the OVDI/OVDP really have to make an official willful /non willful determination in the closing agreement? Is it part of the process. Can you pl clarify.”

The actual 906 said nothing about willfulness or not. It was all about an agreement with the usual boiler plate assortment of WHEREAS Taxpayer did this and WHEREAS Taxpayer wants to resolve that. They are statement of basic factual agreements, but without any willful/ non willful assertions .

However, there was another form13449 “Agreement to Assessment and Collection of Penalties under 31 USC 5321(a)(5) and 5321(a)(6).” that accompanied the 906. It was used to calculate my lowered penalty. On the front, there is a Definition of Penalty Statutes, and five(5) are listed. On the subsequent attached pages, are penalty calculations that are done for each year. The agent has to check a box that corresponds to one of these 5 definitions on the front page. In my case, they used the 3rd definition of “Negligent failure to Report” which was less than the willful failure which was number 1 on the definition list.

What I don’t know, is if the form 13449 is used along with all 906 OVDP/OVDI Closing Agreements, or if it is only used in an Opt Out situations where penalties are calculated that are less than the 20% or 25% amounts provided in the OVDP/OVDI. Maybe some practitioner who has more knowledge than I have can provide an answer.

I find your story extraordinary. You show the IRS/Treasury who really knows how to follow the laws :)

(And yes you are right, most of the millions of immigrants and expats or dual citizens do not file FBAR even when told about it. There is something sinister about FBAR. It is not an IRS form, it is a Dept of Treasury form, and under the Financial Crimes Enforcement Network (FinCEN).

Why doesn't the IRS want to know the account names and numbers is suspicious to me; they want all other names and account numbers and 1099s, etc, why not the foreign ones.

Why should its boss, the Treasury care about accounts and investments abroad? Highly sinister.

Having accounts abroad is not a Financial Crime, so why should I report myself of a crime, is the logic. Nobody I know has filed one, nor do they have plans to. Granted their money is already taxed abroad, like domestic money is taxed here. And I suspect the IRS would not dare take money from say, Canada or Germany's, or Australia's tax coffers.)

You mentioned that the examiner advised you to get a professional opinion, and you did do so. What was his/her profession and what was his counsel?

You mentioned you went with the TAS (Taxpayer Advocate) instead. Are they like a "Public Defender"?

Re Professional Advice. I have had advice from Phil Hodgen initially in helping decide if I should join, and Jack Townsend when I was running into road blocks on the penalty application and looking for an approach to take with my Examiner. Also he really helped me to understand the Civil penalty judicial process when weighing decisions as what to do next.

I have benefited greatly from both of their blog posts and topical information. They are the best I found.

I have also talked with a Hale Sheppard. He wrote an article back in 2006 that I only discovered in March 2010 after being in the OVDP for 6 months. How I wished I had seen it then. It is still a good reference to help your understand how we have gotten to this place in time. It was entitled 'EVOLUTION OF THE FBAR: WHERE WE WERE, WHERE WE ARE, AND WHY IT MATTERS'

Here is a link...http://www.hbtlj.org/v07p1/v07p1_sheppard.pdf

He has dealt with many VDs prior to the OVDP program, and seemed to know IRS mindset very well. He was extra practical (knows how to blunt unrealistic optimism!) in what the Opt Out options were before there was an Opt Out program guideline. He helped me to know what to expect in terms of time, energy and cost of going through a civil audit and appeal.

American Citizens Abroad was very helpful in directing me to contacts at the TAS.

Also, there was a hell of a lot of reading here (excellent source as you know) and everywhere on the internet where I thought information was reputable. That does take a little work to separate the Wheat from the Chaff, as they say. You should see all the bookmarks in my browser!!

I spent many LCUs pouring over the IRM. Hate that manual! It was hard for me to read, and I tended to really glaze over. It took a lot of repetition to make it all stick in my dense little brain!

And then, ultimately, I had to make decisions myself and set my own strategies based upon what I gleaned from all these resources.

As far as the TAS goes, they are not a public Defender. They are an Advocacy Office created by Congress and exist within the IRS. I have found them very professional and sympathetic to the Minnow situation. It definitely helped that they had recently put out a report to Congress with complaints about how the IRS was administering the OVDP program. If you haven’t read that you should.

The rest of my TAS story is there. I was just Anonymous as you are here! :)

As far as the sinister nature of the FBAR, I will reserve judgment. It is less sinister then it is just an inept and unrealistic effort by Congress for some idealistic purposes that pre-supposes terrorist and real evaders are going to report on themselves.

I can’t see how it is effective for any law enforcement effort. It really only exists as a Statute to pull from the shelf, dust off, and use as a bludgeoning tool to extract revenues. Other than that, I think it has little benefit. Although I am always quick to qualify, that I may be wrong, you can check it out yourself. Here is a bit of blatant plagiarism from another commenter on Phil's blog,

Go to the FINCEN web site

http://www.fincen.gov/news_room/rp/sar_case_example.html

Enter FBAR in the search field, and you will be underwhelmed by the number of reported law enforcement cases in the last 40 years of FBAR form existence (as opposed to its non-existence). Can you make the case that the FBAR has somehow assisted in enforcement of the law? Of is it there, as a handy tool to provide a penalty mechanism to raise revenue when needed, like now? You be the judge.

BTW... If you contact your Congressman, and if they respond with an offer of assistance, they take your issues to the TAS also, so that is another route to consider if you think you need help. But, you really don't need to wait for them, as you can contact the TAS directly yourself. My Senator's, both responded with offers of help, but by then, I was well done the path to a more favorable resolution with the TAS, so I declined additional help.

LCU (Life Credit Units) Worksheet (with apologies to Just Me and to the IRS/Treasury Dept.)

1.Enter your annual income _____2.Estimate years in OVDI _____3.Estimate years in jail ______4.Add lines 2 and 3 here______5.Multiply line 1 by line 4 _______6.Estimate OVDI penalty ______7.Estimate civil fines_____8.Estimate legal fees _____9.Add lines 5 through 8, enter total here:_____10.Enter relocation expenses ____11.If line 10 is smaller than line 9, leave the country, you need not file this form, otherwise line 9 is your total tax.

That is great! Got a good chuckle and I needed that. I am currently working on an email to some reporters, and just got to the point where I was relating some individual stories/comments I had gleaned from here and elsewhere, and was getting depressed again!

A few more questions, if you don't mind. 1) Prior to TAS intervention, you said that the examiner (and technical advisor) indicated that your violation would be considered willful just because you did not tick the Schedule B question. Also, for mitigation purposes, duplication (transfers) would not be removed. Is that correct ? Were these 'official' positions? 2) [ I know this is a personal question, so feel free to say that its none of anyone else's darned business]. How much was your extra tax liability(range is fine) over the 5 year period (not penalty or interest, just taxes) ?3) Did you use FAQ 35 when requesting TAS intervention at all ?

For anyone considering opt-out or who has chosen to remain non-compliant, these are good indicators of the penalties they can expect outside the program -- its not just idle curiosity on my part.

Regarding your questions. I am happy to provide as it might provide Opt Out insights.

1) Yes, that was their positions. I don't know if that meets the qualifications of “Official”. I would say both my Examiner and TA had a very literal b&w reading of everything and held stridently to the line of “no discretion”. Again, that position went away after TAS got involved. She was then eager to apply discretionary help.

As for Mitigation, they asserted that I should consider that duplication (transfers) would not be removed outside the OVDP. That was not just a causal comment or a possible misunderstanding. It was direct admonition that came in an actual phone call back to me to correct what the Examiner had originally told me, which was “of course they would not double count.” The revised position that “duplication would count” was the guidance they wanted me to use to calculate what my penalties "might be" in an Opt Out. However, once the TAS entered the picture that position quickly went away.

I wondered at the time, if that was a tactic just to keep me from Opting Out, but maybe that is too sinister of a thought. It may have been a cautionary guideline or “worst case” CYA type of advice, as they genuinely did not know what to expect in an Opt Out. At this time, there had been no Opt Outs in their office. It wasn’t until later they heard through a management conference call that the first one had just happened using the new June 1st guidelines. However, they were not privy to the results. So, in fairness, they were in the dark too.

Btw, now that I think about it, my Examiner was working on 25 cases in the OVDP. I recall that she said none of them had the profile of the Target Objective of the OVDP, IE none were Whales. All were Minnows like me. I think I was the most aggressive and constant thorn with my persistent written appeals with what was wrong with this entire process. I documented every conversation and every request from her, often with another long treatise. I think in total, I received four 906s from her. She really wanted me to write a check and go away, because that is what others did! (how sad is that?) She complained about how thick my entire file was, and she really preferred to deal with a POA! I was persistent in my assertions. I detailed her to death. Being the thorn was the only small pleasure I got out of the process.

2) I owed less than 20K for 6 years. On a yearly basis none met the IRS substantial threshold due to the foreign tax credits. After doing six form 1116s, I think I have finally figured out how to manipulate the tax software to complete it correctly. I spent a lot of time on this to get it right. The CPA I paid to do the first one, got it wrong! I amended returns working backwards, 2008, 2007, 2006, etc. When I crossed the SOL line, the IRS refused my payment with their standard letter saying the SOL was closed, and I could apply for my money back, as it did not meet their thresholds for collection. Go figure.

3) FAQ 35 was not my primary appeal to the TAS. The inappropriateness and disproportional level of the penalty for my benign failures was my appeal. (I did site the Geithner example of no penalties for failures much greater than mine.) I had asserted FAQ 35 when the Examiner levied the penalty. The Examiner denied it and said it had been withdrawn. The TAS did, however, use the FAQ 35 argument when they appealed, and it was on that basis I was offered relief. I do think that the arguments the TAS used, and the manner that mitigation and discretion was applied does offer an insight at how Opt Outs might be handled. The TAS was hoping, I think, that my case would provide a precedent for those that follow after me. I did hear second hand (in the for what it is worth column) that Nino Olsen, the TAS Director is going over OVDP results looking at how penalties were being applied, looking for disproportionate penalty application.

Did you sign to open the account before you became a US person ? if so, you could attach that to an explanation.

OR

Did your parents report any income on these accounts on their Indian tax returns ? Were their Indian taxpayer numbers/IDs primary on these accounts ? If so, you could argue that you had no ownership in the accounts. You are only supposed to be penalized to the extent of your ownership. But you would need documentary proof of that, such as Indian tax returns, if any.

For those trying to have the U.S. media focus on this issue, I think you are wasting your time. Foreign media is more willing to highlight examples of harsh treatment of their nationals at the hands of a slowly collapsing America. Contact your embassy and national print/digital media to have them apply pressure from the outside. There are many sad stories related to this program which have impacted people from around the world. Let’s tell their stories!

"is the IRS still sticking to the policy of NOT disregarding duplicates (i.e. double-counting)? How sadist is that?"

I really do not know if that is a policy or not for the OVDI. It does seem unreasonable, however, as I said above, that is what my Examiner instructed me to figure. I am not certain of the intention of the instruction. Was it a fear technique to discourage Opt Out, or was it more out of a CYA for a worse case consideration? Don't know. However, considering that both the Examiner and TA were uncertain about what would apply in the Opt Out, (there was less known about the process then) they could have been in error. If I talk to my Examiner again, anytime soon, I will report back. Maybe there is better clarity or different instructions now.

If double counting were allowed, I can not imagine the TAS would be happy about it. If you are asking for Opt Out consideration. Ask your Examiner directly about this question, and if they really are going to double count, then ask to speak to their Manager or Regional Director before you decide. If they really try to would do that, I would then call the TAS for assistance, as it does sound totally unreasonable to me too.

However, don't panic yet. What I was told, even though it is accurately reported, could be wrong. This MAY NOT be policy. I really do not know. Maybe someone else reading here has a more recent experience and can shed light on it.

Your ideas about contacting your home country press and embassy might be a good strategy, but since I am American, I will continue on trying to interest US media in the story. I doubt Shulman reads the India Times, but dead certain he reads the Washington Post. The odds are long for sure, but nothing ventured....you know the rest!

The main thing is for Minnows not to sit quietly frightened waiting their turn at processing in the IRS fertilizer factory. The worse thing you can do is nothing. You have already disclosed your failures. You are trying to do the right thing, painful as it is. You are already moving along the conveyor to a certain outcome, as you already know that the worse case scenario is 25%. What else have you got to lose by engaging in a little activism and try to get your plight in the media?? The way I look at it, any effort now, only has upside potential, so DO SOMETHING! Even if it is a long shot.

Did you try to get the IRS to issue a negligence penalty for FBAR violation $500 a pop or even the warning letter ? Clearly, they did not agree to that, but did they (or the TAS) seem remotely receptive ?

Finally, I note this from the IRM:

'Given the magnitude of the maximum penalties permitted for each violation, the assertion of multiple penalties and the assertion of separate penalties for multiple violations with respect to a single FBAR form, should be considered only in the most egregious cases. '

Clearly, your case was not one of the 'most egregious', yet it seemed from one of your comments that the IRS may have been ready to impose multiple penalties per form (or maybe they just hadn't formalized their procedures) ?

I filed my letter to OVDI-CI in July and my attorney did not let me know until end of August that they need additional info. I added the info and mailed the letter end of august. Havent heard anything so far.

Anyone can provide a timeline on how long their OVDI-CI letter was responded within? (including mailing time)

Don't know what is happening in the OVDI, but for the OVDP, it took forever,or so it seemed. Your life felt in suspension while you waited. I don't have my records with me right now,(I am traveling) but seem to recall it took them 3 months or so... Surely they have sped up the process by now.

It was basically a negotiation. Examiner starts high, TAS stars low, and they settled and agreed upon $25k. There was some negotiation back and forth with the Examiner’s office. I think they tried the most minor approach first, and the Examiner came down to $115k. Then they countered with the $25K. Examiners office accepted it.

That seemed the best we could hope for, so we took it. Wished I could have had the Geithner penalty, zero, but alas, it was not to be. I am not up for Senate confirmation. :)

As for the multiple penalty thing, I think it was just a tactic or ignorance on Examiner/TA part. I am trying hard not to assign a sinister motive, as intentions are difficult to determine. I really hope the IRS does go down that route for Minnows in the OVDI Opt Out. It would not be fair, right or just, but as we have learned, the hard way, those factors sometimes don't seem to matter when it comes to IRS enforcement. We are just a pawn in a larger Chess game to force compliance on those that would other wise not pay attention or would actively evade. The IRS has never read the book "Nudge" as an alternative strategy to improve FBAR compliance. Or maybe they consider Criminal Prosecution is the only Nudge that works. They aren’t the most subtle organization in the world. :)

Did anyone receive a signed copy (executed by IRS) of the Form 872 back from IRS? I read on another blog that one of the participants had received a signed copy of Form 872. That should be a sign that your submission is being processed. IJ - you seemed to have received a message that your package was complete - did you receive the Form 872 back?

My comment was the one just before it. I would encourage to read the entire thread if you haven't before. I was an Anoymous then. At that time I was hitting the wall, and I had just appealed to the TAS, outcome unknown yet.

BTW... Asher comments on Jack's blog often, and has handled many OVDP for clients. If you click on his name, it will take you to his web page, and he has had some good commentary there...

To Just Me:In one of your posts, you said your penalty was determined as 172K because they included your house.Were real estate assets part of the penalty base in the 2009 OVDP? I thought it was not. How did they determine the value of your house?

'Just Me' -- was part of your argument to the TAS economic hardship, or was it general equitability of penalties relative to tax due, deviation from IRM etc. ?

I was wondering which argument seemed to strike the most chord (I would be extremely hard pressed to argue economic hardship, for the FBAR penalty would be a very small portion of my net worth, but its still several times the tax due).

Also, you indicate that your Senators seemed willing to offer help ? From what I've read, they just refer you to the TAS (which is still helpful, since you get an introduction). Did they offer other help or was the matter moot at that point ?

In the OVDP, I got surprised, probably because I did not read the FAQ closely enough, or at the time, too dazed to fully comprehend what I was reading.

If you have any income (didn't matter how minor) related to an asset, then they included it in the highest aggregate amount. My Examiner tried 3 times to have the house excluded, but the TA would not allow any discretion.

House value was determined by Local Council Rate notices. These were the basis for local property taxes. This means, I did not do or provide separate appraisals. Unfortunately for me, there were some BIG re-valuations at the time.

My argument to the TAS had NOTHING to do with hardship. Over time, and with some significant retirement savings hit, I could have raised the money. I just did not think it was right!

It was a fairness and equitable argument, and I was asking for discretionary relief that the Examiner could not provide. Everything about the entire program both in time, stress, and penalty was totally out of proportion to the benign failure. Even if my house had not been in the highest aggregate base, I would have still gone the TAS route. I personally thought the entire penalty structure that had no de minimus rules, or was totally divorced from the tax failure, was grossly unfair. If the penalty had been some % of the tax failure, then I would have been more resigned. However, the 20% accuracy penalty already gets you in the shorts there, so this highest aggregate balance penalty nonsense, was just an egregious money grab, in my opinion. And, it still sticks in my craw that Geinther experienced none of this type of penalty hit, including, I understand, no accuracy penalty. How fair is that?

Regarding your Senator question: Yes, the Senator replies to your letter, and then just directs you to a staffer. The staff persons wants you to sign some forms giving them access to your IRS records, and then they would approach the IRS on your behalf. When I inquired, who in the IRS do they go to, they said, the TAS. They further said, that is the only avenue they have, so I don’t think there is any additional help they can provide. Now, what I don't know is if having the Senator approach the TAS gives you a better chance for TAS consideration. Introductions might be helpful, but certainly not necessary. For me, it was a moot point, as I had already appealed to the TAS by this time. The TAS had already assigned a case officer to me, so nothing more was required. I do think going directly is more time efficient, if that is a consideration. For me it definitely was, as time was of the essence. I was within 10 days of having to either Opt Out or be kicked Out, and neither one of those options were palatable at the time.

So in your final settlement, did you have to pay tax, interest and accuracy penalty in years that would otherwise not be considered ? [ > 3, but less than 6 years, but no substantial understatement ? It wouldn't be a bad deal for such a reduction of your FBAR penalty, but technically the IRS could not assess extra tax in these years, except as part of a settlement with you.

Well, if you have more Qs, later, feel free to ask again. I just wished someone else would share their experiences here too. I kinda feel like I am hogging too much space, and I have to think there are others, besides me, that have something they can add to the discussion for all those new entrants into the OVDI. Maybe they have just moved on, or just paid up and went away.... Anyway...

In my final settlement, I paid the tax, interest, and accuracy penalty for all 6 years. This was not a technical "Opt Out" civil audit where in theory, years 2003, 2004, 2005 would have been beyond the SOL. Sure, I would like to have that money back, but honestly, I did owe it, so it wasn't like they were taking something additional from me, except for the accuracy penalty and interest of course. But in the scheme of things, Geithner special deal aside which I wasn’t going to get, that wasn't really that much.

However, if your Opt Out decision rests on your belief that those back years won't be available for tax collection, I don't know that I would bet the house on that. Don't underestimate the ability of the IRS to decide, in an Opt Out Civil Audit, that those years are still subject to the T, I & A. I am not a tax expert, and a practitioner would be better able to tell you the technical limits. I made the assumption, based upon the experience I saw in the OVDP, that they own the play book, and write the rules, so always assumed that they controlled the game and thus, I would be on the hook for those anyway. There may be a strategy that would work for you that excludes those years, but you really need expert Practitioner advice. The T,I & A did not factor into any my final decisions.

As you go through the OVDI, I will really be interested to see if the processing speeds up from my 23 month ordeal. For your sake, I hope so, however, you do have the prospect of a lot more time in the Civil Audit processes, and who knows where that will go, and if the IRM will really be followed. I have to think something less than the Maximum penalties will apply and discretion will return, but boy have I been wrong before.

Anon -- I find your responses very helpful, and I hope others with experiences with OVDP contribute too. There have been a few such posts, but most seemed to have settled quietly. Practitioners might know of more successes under FAQ 35, but that is not available any more. And there are some cases such as the one cited in Hodgen's blog, but that person had a truly compelling case and a story that would move a heart of stone.

I am afraid there are a lot of "Hearts of Stone" in that bureaucracy, especially the higher up the ladder you go. They get all hung up in the morass of their technical rules and regs. But to be fair, (god I hate when I do that! LoL) they have heard every excuse in the book, so they get hardened to it. Kinda like the ER nurse no longer responses viscerally to pain, blood and guts they see every day.

One final thought. If anyone is still in the OVDP and not closed out, or if think you were harshly dealt with as you did not fit the profile of what they were going after, I would still be challenging the March 1st letter by Monica L. Baker Director, SBSE Examination via the TAS.

That is just plainly unfair, inappropriate, and wrong to change the rules mid game. Every child on the recess playing field knows that. It is the most basic elemental rules of a just society. It is even more harsh to up the ante by only allowing comparisons of OVDI penalties to Maximum levels, which really shows they have still no interest, compassion, or understanding of the disproportionate impact on the small fry… (IE.. those “Hearts of Stone”) Their response, “Opt Out” is laughable, if it weren’t so sad. Minnows shouldn’t have had to “Opt IN” to this processing factory in the first place, but I digress.

Put that in the "for what it is worth column" It is my opinion and experience that the TAS is very sensitive and sympathetic to this issue

BTW, go to the Justice Department web site, and read again, if you haven’t, what they are still saying about their enforcement efforts related to offshore banking. Does that sound like you? If not, don't be so passive (I mean that kindly) in accepting your 25% fate, just because you disclosed and did the right and honorable thing.

To Just Me and M:There are many of us out there whose main failure was the omission of a form that they had never been aware of and who entered OVDI to do the right thing and now regret every second of it. We cannot comment in much detail on the "fun" we have already had due to the fact that we are just beginning the process and we do not want to jeopardize our cases. We appreciate your efforts and posts and as soon as we can report more, we will.

What I am willing to say at this point is that I am one of those who may qualify for the 5% penalty as an overseas resident who was tax compliant overseas. I entered the program early on after receiving poor advice and did not realize that overseas assets were included in the 25% penalty. My liquidity did not cover the 25%. Once that became clear, I went into shock and depression. I stopped eating, but friends convinced me to start eating again and that is when I found out I was a comfort eater and gained 27 pounds. I figured if I was never going to be able to afford to eat again, I might as well eat away. I felt I had lost almost everything that I had spent most of my life working for all because of the lack of knowledge of a form.

I became obsessed with taxes and all I wanted to do was lie at home and research tax law that I had never known about. I bored all my friends to tears and anger with the seemingly arcane tax rules that I was learning (most tax accountants and tax lawyers can probably relate to this). I am lucky I still have any friends left.

My work performance was poor as I was exhausted from working long days and then coming home to another 4 to 5 hours of collecting and organizing 8 years of documents from other parts of the world with different time zones. Thanks to an understanding employer, who never asked details, but realized something serious must be going on, I still have a job.

It is proof of inept planning when it comes to OVDI that the IRS did not address the issue of overseas resident Americans who are tax compliant in their countries of residence before 2 June (FAQ 52.3). It also shows that they never intended ex-pats to be the target of the program, nor was maximum compliance sought. Had the program been properly planned and announced, it would have saved me a lot of LCUs and possibly would have attracted more ex-pats from the beginning.

Thanks to this blog, I found out about FAQ 52.3 about the same moment the tax professionals I am working with found out about it.

So that is an overview of the personal costs so far. Until now, I estimate that I have lost at least 8 months of my life to worry, document processing and tax research.

Financially, the costs I have already paid for documents, tax professionals, mailings, phone bills, etc., are equivalent to my potential penalty (5% case) and 3 times the amount of tax I owed.

It would be a dream if my noisy disclosure was considered "up to snuff" and the process not as dragged out as that of others appears to have been.

It is now a quiet period as most all OVDI participants are waiting to have examiners assigned. ij/tsanaha and Anon123 have not written in a while so I assume that we are all in the same boat. While ij is an OVDI participant, hopefully, Anon123 is appealing to the TAS even though he signed a 906 and can get some retroactive relief and that is why we have not heard from him. Or better yet, maybe he has moved on.

I promise more as developments are able to be related. Until then I will not respond to any questions or requests for more details.

If you don't mind, and because you are an Anon, I am passing your story on to one journalist that has taken up an interest and is now corresponding with me. He will never know who it is, but I want him to see the agony this type of program is causing and the press is generally not aware, as captured as they are with the IRS "success" narrative.

You very eloquently show the emotional and LCU toll this whole effort takes on you, which as I have said before, never shows up on the OVDI penalty spreadsheets.

I thought 6 years of document production was hard enough. I can't imagine the 8 year effort. It is just outrageous.

You should NOT have to go through this for trying to do the right thing and become compliant, for such a benign failure. 5% is too much to pay for all of this.

If you can create a name "Anon 5%" under the “Comment as” drop down next time, it will help us in the future watch for your experiences which will be helpful for others.

Finally, it really is a shame that the IRS has deliberately tried to assure that all disclosures are "Noisy" with threats about doing “Quiet Disclosures.” Frankly, if this wasn't just a revenue grab on the IRS part, quiet disclosures should have been allowed for all those that didn't fit that description that is on the Justice Department web site I reference above. Had they done that, I think they would have got higher compliance rates, not had to hire as many new agents, had a more efficient program, and might have actually raised more revenue to boot!

If your quiet disclosure really raised a red flag, like you were reporting income now from UBS bank, known to be engaged in tax evasion schemes, or if you were reporting new passive income from the Camen Islands, as another example, they could still do the civil audit. That would have kept the Whales directed to the OVDI, but otherwise, for the Minnows, just let them go without extracting more penalties and causing more legal and LCU costs. For Minnows, this is such a waste of time and resources, for a relatively minor return. Why put you through this misery, if the goal was just compliance? Unfortunately, compliance is not the goal, revenue is! If compliance was the goal, then Mr. Shulman, you have failed miserably. Show me the numbers that represent a statistically significant compliance increase to prove me wrong. 30,000 tells me nothing, other than a high percentage of Minnows were duped into joining and caught in your net.

I am here all the time. I have great sympathy for expat Americans who are in OVDI and a bit less sympathy for immigrants (including myself) who live in this country and should know IRS filing rules better.

For awhile I felt hopeless/helpless -- then I felt better, in part, I know it is a point of no return. I can only hope to get f906 soon so I can have a closure.

Good luck for all who are in OVDI 2011, we should consider f906 as a "badge of honor", as one among 12000 (likely only 10% of who should be in OVDI), we are in OVDI not because we are cheats, we want to make it right after learning FBAR and other related IRS rules.

Ever since I joined the OVDI program - I eat, drink, think and dream taxes. I am also barely functional in my job.

My initial worries centered around the hefty penalties I will have to pay.

But now I am overwhelmed by the process itself. Between choosing the right CPA, collecting 8 years worth of documents from a country half way around the world, writing to "Criminal Investigation" for permission to join the program, trying to get answers to so many "grey area" questions - my head is spinning most of the time.

Was this the "peace of mind" I joined the program for...I am not sure.

There appears to be a thin line between being "honest" (which I was trying to be by joining the OVDI as soon as I became aware of my non-compliance) and being "stupid" (which I now feel I am by choosing to join this one-size-fits-all OVDI and bringing so much misery upon myself for no reason). I feel seriously embarrased to tell my immigrant friends that I have joined the OVDI program (assuming they know what OVDI is in the first place).

At time I wonder - is this real? Can this actually happen in US?

Once in a while - I feel like those Americans hikers who were jailed in Iran? Except that the media in my country is not highlighting my situation the same way as CNN etc covers Americans who are presumably treated unfairly by foreign governments.

Sorry to be overly dramatic....

I am a minnow immigrant who made an inadvertent mistake...darn it...not a millionaire who has stashed his loot in some island with a fancy name.

Good to see you commenting again. You have added value to the discussion, especially from the Immigrant perspective.

The 906 may be a “badge of honor” for you, and I respect you for coming forward and doing "the right thing". However, when the cost is so so high for doing the "right thing", the unintended consequence is that many many more, do the wrong thing. Compliance initiatives should promote good behavior, not push it away. I fear the high cost for being a “non crook” is now taking what was benign failures and pushing people into serious jeopardy. That is very unfortunate and results from a “Non enlightened” policy.

Jack said something that has stuck with me, and with liberties which I hope he does not mind, I am going to repeat it here.

“ there is another story to be told about jettisoning fairness and grace (a concept not normally found in the Internal Revenue Code, but which is inherent in good and fair governance).

That 906 “badge of honor” that many Middle Class will get to wear (for not even being the target Rich Evader using secret accounts when this OVDP/OVDI started) , represents the “jettisoning fairness and grace” in pursuit of revenues, and definitely is not leading to "good and fair governance."

I really wish you well and hope that 906 brings closure. I can certainly understand the desire to just move on and be done with it. The IRS is depending on taxpayer's need for that closure, and maybe that is ok if the price isn’t too high for sin. Each person has to decide for themselves. For me personally, I could not accept the price, and that is why I went to the TAS.

Again, I encourage you to read that Justice Department page again one last time, and ask yourself, was that me?

It appears you pulled those exact words out ofme. That is exactly how i feel too.

For the past 6 months i have become a zombie.At my work, i was the best. I am a goodfather, a good husband and a good son.

But ever since i came to know about this stuff,what gnaws me a self guilt, that in the eyesof law, i could be portrayed as criminal. Darn it there are hundreds of thousands like me but they sleep well at night. Why me? I had/have everything in life i need, a great job, a good family a caring wife. But ever since i joined this program i cant sleep. I am obsessed. Everyone in my house seem to be ok and they think i am hyper venting too much.

Sometime i think the pressure is too much thati should simply run away. Before this stuff,I used to always tell my wife how blessed i am.But now i can only think about ovdi, jail and sentencing.

The single solace is watching this message every few minutes and seeing that there are couple of other souls going through the same emotions. Misery loves company. Doesn't it.

Thanks for your comment. You have been not only "Just Me", but "Justice for all". Your voice represnts all of us -- "we are not tax cheats but simply being ignorant/innocent/decent taxpayers.

I am an immigrant but I have been in this country long enough should have known all the IRS rules. I was in the middle of contract of buying my very first home, then I saw the news of OVDI 2011 in March, and found myself in the middle of dilemma. I became sleepless, and I decided to go ahead to join OVDI -- to take a short term pain. Yes, it hurts when I have to pay penalty in the amount of many years my hard work earn saving for as little as $2k tax due (likely much less if I know how to claim foreign tax credit).

I cancelled the contract -- and I put money aside for penalty, it was not an easy decision for me. I have some friends who have same situations who never bother to think that is a problem at all.

I will put up a fight with IRS if they decide to impose penalty on my Canadian Register Retirement Plan (RRSP). I think it will be a good case for TAS. My problem is just as simple as making a late tax deferral election -- and according to IRS manual -- they seem often grant such a late election.

Again, once inside OVDI, we all have to hope for the best, and prepare for the worst.

May I suggest you read Kafka's "Trial". I read it in college and many scenes resemble this blog: "zombies" walking around aimlessly, always preoccupied with their cases, who's only friends left are their lawyers.

http://www.gutenberg.org/ebooks/7849

Wikipedia says that the novel is based upon Kafka's own experience with a case.

"[The} inexplicable experience of the law in The Trial were, for example, born out of an actual legal case in which Kafka was involved."

You say... “Yes, it hurts ..... for as little as $2k tax due (likely much less if I know how to claim foreign tax credit).”

Pursue those tax credits even if the form 1116, is not the most easy one to figure out. I am always amazed at how these “credits” are so causally mentioned in other Tax blogs and commentary, as somehow a great and wonderful equalizer for the way the US taxes immigrants and expats "foreign" earnings. It makes me think, that the person saying that has obviously not tried to read the instruction booklet or complete the form themselves. I have defied the acting head of the IRS Fraud/BSA Small Business/Self Employed Division (IRSFBSASBSED) back in 2010, to read the 21 page instructions and understand them! I am sure there is some very technically orientated and knowledgeable CPA who can, but I am not sure how many LCUs the average middle class American would want to devote to the effort.

If you use Turbo tax, I have found that if you are just following the interview, it does not get the 1116 entirely right. You have to know how to go into forms and manipulate it a bit. I have mentioned before, that the CPA, who was using his fancy professional software, got the first one wrong, and frankly did not know how it worked, or why it was wrong. When I got the return back from him, and paid $1000 for the privilege of doing my amended return, I looked at the form 1116, and said "What's this?" There was an obvious error where things did not add up. His response was kind of a "shrug" and not to worry. “They never audit these things”. That really gives you confidence, and diminishes the value placed on accuracy and detail for which the IRS now asserts these Kafka style penalties. It was only upon my instance, gun shy as I now was, that he took action. He finally got it corrected, after going back to the software maker support desk and spending more than an hour of time.

Anyway, once you get an example that is correct, and if you are willing to manipulate Turbo tax a bit, you can repeat it year after year with reasonable expectation that you are correct. That assumes you are not doing anything too fancy back in Canada and just have some passive interest income. That will give you some relief, but maybe not that much depending on the ratios of your US gross income to foreign passive income. Complicated, like I say, but I think I have it down now after 8 years of duplication! Although, each new year, I do have to brush up my brain a bit to remind my self, “how did I do that last time?”

Very very sorry about the home purchase. That is a real “gut punch” detail that we rarely hear. To Mr. Shulman, I have to ask, “With stories like this, you must be very proud of your ‘successes’. How does that fit into the economic stimulus programs that your boss has tried to create?”

Keep us informed of your journey through Kafka land. I just have to think (hope) that if there is any justice and grace left in America, you might have a more positive outcome than what you are facing now. Will still cost you LCUs, but maybe not as much USDs that were set aside for a down payment on a home. Keep the faith! Maybe home prices will fall farther, and this will turn out to be a benefit for you!

I am still here my friends. I read this blog each and every day. I signed my 906 back in October 2010 but I still dwell on the matter and find it hard to move on. I went through the same compulsive behavior of research, no sleep, no decent eating and tons of worry. I do not think I will ever be the same. What can one do? Its such a horrible program and it certainly is doing damage to decent people. I quit my job because of related stress. I did however have a good sized inherited account but that is not enough to stop the hurt. I feel like I am drifting aimlessly through life and I really do not understand it but I am sure the cause is the stress from participating in OVDP. Simply a feeling of helplessness and depression. When I came to America I thought for sure this is the worlds bastion of freedom and justice. Now I am not so sure. I agree that we have an obligation to make things right but these programs are over the top with intimidation and excessive fines. I hope we can all get through these negative feelings and move on to a decent life. I truly wish all of you that are hanging in limbo a quick and decent resolution to your nightmare. Thank you Just Me for your eloquent public service postings towards those caught up in this bad situation.

I have to commend your attitude. I too have great sympathy for expats who have not been filling tax returns for year and are essentially accidental Americans). I also have a great deal of sympathy for recent immigrants, including those who do not have green cards yet. I too do not think that long time immigrants (people with GCs or US citizenship) who are US residents should be treated differently from US citizens by birth and residents. I also think the penalty is too high. And I have a great deal of sympathy for people who make inadverent mistakes (like you), especially since it seems to be a severe financial strain on you. I hope you get your RRSP deferral.

I am an immigrant too, with a few small old accounts in my home country (only a few small amounts transferred there once). Totally tax compliant on US returns. I did not know about the FBAR requirement. But I'm not going to claim that I was 'trapped' by the US government. I should definitely have been filling out the income (although my tax dues were < 1% of my regular tax due in all years) from my old accounts. The penalty is harsh (especially, since I just missed the 12.5% cutoff), but I'm willing to pay up. No grudges against the IRS (so far, anyway) or the US government in general. I might consider opt out later.

if your stress is over the OVDI penalty levels, then the only suggestion I can have is to consider opt out if you have a good case.

If your stress is over the process, I think its misplaced. I am in OVDI 2011 too, and I have a few old accounts (with small amounts) for which I could not obtain statements, similarly some cases where calculating interest is a little hard, but I did my best. I am not in the least concerned that minor mistakes will lead to any problems. As long as you have been open and truthful, there is nothing to fear (beyond the known penalty). I am not stressed over this at all, and I am perfectly willing to opt out if that looks like a better alternative.

Frankly, if you are this stressed just being in the OVDI, then you seem to be a fairly risk averse individual and would probably have done worse outside the OVDI.

Glad too see you are still around, and thanks for your kind words. I think it is important for a few of us to hang around a while and share and/or provide support for those that follow and are questioning what next? You have done some good posts in that regard. They were very helpful to me, when I was still pondering my fate. I don’t know about you, but by reading here, I discovered that I wasn’t that alone or different from many other middle class folks that got inadvertently caught out, and tried to do the right thing. It is really great that Jack has provided this blog this purpose, as we went through the entire 2 years, without even our closest friends or family knowing about our struggles with this OVDP mess. So in that, we felt very alone, as we were basically too embarrassed to bring it up. Didn't want to stress out elderly parents, and didn't want our friends to think we were stupid. Having this outlet has greatly helped.

You, like me, will probably move on at some point, but my wife thinks that commenting here gives me relief or some kind of closure. Almost a grieving process, without putting too much of a pseudo psychological spin on it. Just want to encourage others to not be so intimidated by it all that they aren't willing to consider Opt Outs,(now that they are available and if they become less opaque) or appeals to TAS for the unjust penalty levels.

Obviously, reading of the various levels of stress, anxiety and pain this whole process has caused people, it just goes to show that we all have different make ups and nervous systems. Some can deal with financial lost in the stock market better than others, and if a person is really stressed from this, I can only commiserate and try to provide some comfort. After I got over the first emotional shocks and stress of document production and finally came up with a solution I could live with, I have reverted to a fatalistic acceptance. I keep reminding myself, I could be protesting in the streets of Syria and being shot at right now. Puts this injustice into its proper perspective. In the end, we all return to the atoms that we are made from, and none of this matters when you stare out into the vastness of the universe!

But...all that goobly gook aside, don’t be so passive that you aren’t willing to fight a bit for what is Right and Just! Please don't just roll over and take it without some struggle.

And for you immigrants in America, just because one IRS Commissioner doesn't know what he is doing, or how adversely he is impacting normal people, don't hold that entirely against America. It is just losing its way here right now, hemorrhaging badly, and politically dysfunctional. That has happened before in our history, and hopefully the ship of justice will be re-balanced sometime in the near future.cheers to all.

Just Me: "don't hold that entirely against America. It is just losing its way here right now, hemorrhaging badly, and politically dysfunctional. That has happened before in our history, and hopefully the ship of justice will be re-balanced sometime in the near future."

Well that's not gonna happen until people begin to realize just how bad it is. This unjust persecution of individuals is just the sort of tip of the iceberg of how statist, trained in Ivy League schools, are ruing US. Consider this story by Gonzalo Liro: http://gonzalolira.blogspot.com/2011/09/what-i-learned-at-dartmouth.html

The scary thing is that the kind of people that persecuted him at Dartmouth are the same kinds of people running the US bureaucracy. There is nary a difference between them and Shulman. He writes: "The kind of men and women Dartmouth enrolls and graduates are the bright men and women who find places for themselves in the gears of America society. The men and women on the COS hearing in the fall of 1991 were no different. And they showed me how fundamentally corrupt the American leadership class really is."

That is just the extension of the SOL to be sure they don't lose the opportunity to assess you penalties. They could just be pumping those out of a SOL mill without assigning an individual examiner. I am not sure..

I don't know how they do it now, but I got a call from my Examiner to start the process, and then it took another 18 months to finish it. Of course, I wasn't as eager to sign the 906 closing statement as you seem to be. :-). Let's hope this is the light at the end for you. I know you want it to be over.

Just Me - could you please post what your timeline looked like broadly speaking (timing for acceptance of letter, assignment of examiner, submission of documents, etc) I know that ovdi 2011 is different given centralized processing and upfront submission of all documents. Do you think this process will be faster than 2 years that it seemed ovdp 2009 took?appreciate your inputs.

Just me - In 2009 OVDP, penalty was 20% of highest aggregate balance. Was 172K assessed on that basis? I am not sure if you have already mentioned this before, but I was confused on reading 5K per year. Thanks

I hope those who have gone thru 2009 and 2011 programs will stick around for a year or two to teach those of us only coming into the game now how to play. This is so unfair, but the exprience of those who have gone thru the programs will help level the playing field. I hope this blog and all its comments are up for months/years to come. This is such a horrible experience.Thanks!

I would think that 2011 cases will be quicker to close. Less participants, more trained agents, greater standardization and centralization. My guess would be a year or so.

Anonymous October 4, 2011 12:48 AM

Yes it is a horrible experience. At least it will be behind you once you get done. It is clear that IRS is motivated to continue looking for noncompliance. I can tell you that recently I got a survey from IRS regarding my 2009 disclosure. It had 10 questions regarding the bank where my account was at. They are looking for more banks to attack. Also DOJ has a hit list of banks in different countries that they are investigating. Look at the bright side. You will have less money but you will not have to worry as this process continues. If IRS is true to their word, the costs of future noncompliance will be higher. If I can answer any questions based on my 2009 experience, I will be happy to do so.

All the states are different. Some had programs that piggybacked the IRS programs with deadlines and policies. Others have ongoing disclosure programs. Start by researching your states revenue department. You could even call them anonymously and ask for guidance. Document who you spoke with and what was said. Towards the end of my 2009 IRS OVDP disclosure I contacted my state anonymously and they told me what to do. It was very simple but my state has no income tax. They do have a tax on certain types of dividends and interest. Lucky for me my earnings were not taxable by my state but they still instructed me to amend 3 years showing my bank interest as nontaxable interest. My understanding is that the IRS will eventually share information on amended returns with the states. I was told that this would not happen until sometime after the IRS disclosure was complete. I guess the magic question is when. I made the decision in my case to make contact with my state as soon as I knew my 906 was close at hand. I did this on my own to save on attorney fees as they had wore me out over almost 2 years. I think some of the states that were hardcore on this matter are: California, New York, Connecticut and Hawaii. There may have been more. My state was a very easy and a quick deal. You could also do a quick consultation with a practioner in your state that has related experience in your state. I would think an hour or less would set you on the right track Good luck to you.

"Any ideas on the implications of filing amended state returns and issues from state tax agencies. How to handle this. How soon does the Fed notify the states about the amended returns? "

Some states also have OVDI programs with deadline (like California), you should check with your state. It is better you let them know that you are in OVDI and will file state amend as soon as you are done with IRS.

States have NO FBAR penalties. Its just like a normal tax amendment, do it when IRS is finished. Its not a big deal if small amount of tax due. Nothing to worry about. I dont see any reason to join state VD program unless you have a large balance.

The $5k per year penalty came as result of my TAS appeal. I could have just written a check for $172K (if I had that much readily available)and sent it off, but of course, I considered it ridiculous amount, and so appealed to the TAS before I was kicked out of the program.

I got discretionary consideration for a lowered and mitigated penalty based upon FAQ 35, which allows penalty discretion before it was withdrawn from the 2009 OVDP. I have to think, that this is the type of discretion that should happen in 2011 Opt Outs, if they work as they should, but don't know that for sure.

Actually California does have a deadline of October 31st irrespective of OVDI closing Agreement. This does not make sense! The terms read really harsh. Looks like CA participants in OVDI like us are in for double misery...

All the CA program is asking for is tax due and interest, right ? That does not look at all harsh, since they are waiving any penalties that may apply. The deadline is stiff, but I don't think its a big deal if you miss it unless a really large sum is involved. Just send in tax due and interest, and if IRS adjusts your returns (unless its a large sum), let CA bill you.

While we are talking about CA, one interesting page on FTB website talks about results of earlier VCI programs.

http://www.ftb.ca.gov/amnesty/2005/summary.shtml

They are absolutely staggering !1 More than 1 million per applicant (individuals/corporations). This is way better than IRS results. Does that mean that if there were no FBAR penalties, there would be more compliance and hence more tax revenues ?

To Anonymous "All the CA program is asking for is tax due and interest, right?"

Well reading the FAQs at VCI2 gives impression of harshness or atleast unfairness is because:

1. Per the terms - you are "eligible" for VCI2 if you are OVDI 2011 participant. However they want you to file by Oct 31st knowing well no participant would have signed the closing agreement by that date.

ALSO READ THEIR ANSWER BELOW to Q.1 of the last section of FAQs. QUOTE "Q.1 I am participating in the IRS's Offshore Voluntary Disclosure Initiative (OVDI) and wish to participate in VCI 2 to report the same offshore income. Following the IRS review of my application, additional federal changes which increase or decrease my federal adjusted gross income may be made after the October 31, 2011, VCI 2 deadline. If I report my income during VCI 2, and the IRS makes adjustments after October 31, 2011, can I amend my VCI 2 amended return, pursuant to the federal determination, to avoid penalties and criminal prosecution or claim a refund?

ANSWERNo. If after October 31, 2011, the IRS determines your income and tax are more than what you reported on your VCI 2 amended return, the FTB may impose penalties and/or initiate criminal action with respect to the difference between the amount shown on the VCI 2 amended return and the correct amount of tax based on the federal adjustment.

Also, note that if the IRS later determines you over reported your income and tax, any overpaid amounts that are related to the use of an OFA and paid with your VCI 2 amended return cannot be refunded" UNQUOTE

Besides the above obvious unfair treatment, look-back period is not clear to ordinary reader. They refer to "2010 and prior tax years"At least OVDI has clearly mentioned the look-back period.

Also terms like "abusive tax avoidance transaction" and "offshore financial arrangement" used in VCI2 sound scary to minnows who are in OVDI because of past ignorance of FBAR requirements and having learnt of these are now trying to become compliant.

FAQs for VCI2 could have been better drafted to be less intimidating to minnows. Please read all FAQs on link below:http://www.ftb.ca.gov/Voluntary_Compliance_Initiative_2/faqs.shtml

It will be great help to OVDI + CA participants if bloggers familiar with VCI2 can please provide some guidance. Thanks

I think you are getting into a lather over nothing. California has NO FBAR penalties. If IRS adjusts your return, the very most they will do is to add some penalty (I don't know what the %age is in california, maybe 20%) on the difference. The possibility of criminal prosecution is almost non-existent unless the IRS uncovers large unreported income in your amended returns (in which case, you likely have far more trouble at the federal level).

For small amounts of tax due, how much is the difference likely to be if IRS adjusts your return ? Maybe a couple of hundred at most.

Personally, for small sums I would not even join the program formally, just amend returns and send in tax and interest for each return. CA will be happy to get the money, they need it badly.

I find Jack Townsend’s blog the best. Most bloggers here are very knowledgeable and thorough in their research. I have great admiration for them and especially “Just Me” whose contributions are invaluable and are a great source of inspiration and encouragement to new minnows (like me) that have joined after discovering the annual requirement.

I believe several bloggers and readers have thoroughly researched 2011 FAQs. One of the facts that I was researching was about look-back period of 2011 OVDI. Several FAQs mention it as calendar years 2003 to 2010. However FAQ 35 is a bit vague and not sure if it is intended to extend look-back period to activities many years prior to 2003. For example if interest on foreign bank account was not reported in 1998, and in same year tax payer used money in the account to buy a piece of land or art not generating any income; then will tax payer have to pay penalty on its highest value during 2003-2010? Or is penalty intended to apply only to purchases during 2003-2010? If former is true then wonder how many years can IRS go back? Thanks

I joined the OVDI as I had some undeclared foreign income from 2006-2008. Perhaps $150k. Unfortunately, as I have been correcting my returns I have been horrified to find that my accountant took my US Schedule C income and treated it as Partnership income (I have both). I did not want him to do this, and do not know why he did this.

I now have substantial under-reporting both in foreign jurisdictions and the USA, with a tax liability and penalty of $300k, at least - before the offshore penalty. I just did not realize that he had done this.

My question: will having issues both in the USA and in foreign jurisdictions lead to referral of my OVDI submission for full audit? This is going to wreck us financially, and I need to figure out what the risks are - because even though I am trying so hard to be compliant, a full-bore audit would push professional and other fees to the point where I just could not cope.

Thanks for your kind comments. Glad to help out. We are all caught in the same net. There are many others here who are sharing valuable experiences and exchanging information. I would encourage you to create an ID for yourself, as it makes it easier for ij, M, Anon123, Poser, etc to address questions. They might be dealing with more recent info than my experience which was in the 2009 OVDP and somewhat dated.

I assume you have discovered, that comments sometimes move forward to more recently dated threads, so encourage you to read some of those also, even if the subject doesn't seem relevant to you...

Keep your eye on Recent Comment column on the right hand side, as it should guide you to recent comments no matter how old the thread is.

Finally, one other helpful blog, is Phil’s blog at… http://hodgen.com/phils-blog/

Regarding your specific question on the highest value period... I have not reviewed the FAQs for the OVDI, as closely as I did for the OVDP, but I am pretty sure the period is just for activity within the 2003-2010 period. Things would only go back further, if, upon an Opt Out decision, and a full civil audit, they thought there was fraud which would allow them to go back further, if I understand correctly.

In my opinion, you need professional and competent Tax Attorney advice now! I don't think you can escape paying something up front now to look over your situation and asses your risk. You don't need to have them do everything for you, so you can limit your cost which is obviously a concern for you, but you do need some good paid advice along the way. Don't be penny wise, pound foolish now that you are at the stage of the game.

I think your questions are a little beyond the scope of blog advice here. I would look through Jack's list of OVDI attorneys at the top right hand side of this page and see if there is one in your area you could talk with, or contact him directly. Phil Hodgen is another one I would recommend to you.

Are you talking about 2011 OVDI cases assigned to examiner? I have some that have been assigned. However, you may be talking about assignments after opting out. I don't know of any. All of my potential opt out candidates are in OVDI 2011 and those that have examiners inside OVID 2011 are not yet at the opt out stage.

Thanks Jack. I meant 2011 OVDI cases. I submitted my full package in mid-August but have not got either the form 872 or been assigned an examiner yet. I don't know if I should be following up with IRS. Since you have a large sample set please let me know if any cases with submission date close to mine (mid-August) have been assigned an examiner yet. Thanks much in advance.

My experience is that the inside OVDI examiner will contact the taxpayer or the taxpayer's representative when he gets to it and wants to consider it actively or needs something. For example, I had two examiners contact me last week after a long period of nothing happening. They were ready to work on the matter the following week (this week) and asked for some information and documents.

Nothing useful is really gained from them contacting the taxpayer or the taxpayer's representative just to say they have been assigned the case and will get to it at some indefinite point in the future.

Jack, you mentioned before about a book on the unconstitionality of excessive fbars by supreme court, can i appeal my excessive fbar penalties? thanks..codycody77777@aol.comI want to know also all the politicans who approved the fbar? Why the fbar is not mentioned on the 1040 at all. clarence williams did not disclose $700k income, geithner 0 penalty, congressman mrazek virgin islands undisclosed a/c charlie rangel non filing of fbar. the media should expose these.

You might not have picked it up from the other threads, as the entire story is not here. I answered a lot of questions elsewhere on these blogs. You might go read those other links which were posted October 11, 2011 9:56 PM above (if you haven't already done so)

No, I did not have to Opt Out. It was a close call, as I was within 5 days of having to decide. In the end, via my TAS appeal, I received discretionary relief centered upon the 2009 OVDP FAQ35, which had been denied previously. Now, that relief did follow the IRM discretionary relief latitudes that an agent has, so I have to think that it could be the model for what happens in an Opt Out, but that is still unknown. There is still a lot of uncertainty about that, and there is no public listing of Opt Out results that anyone can see. We will only hear about it in anecdotal accounts, if people report on their results here.

Oh, and no, I was not subject to a full civil audit which I might have been, if I had to Opt Out. I was prepared, although didn’t look forward to the waste of more LCUs. It would have also been a BIG waste of IRS time, as they already had everything but by blood type. After 2 years, I thought maybe they would forego the effort, (as they can do, depending on the examiner input to the management Opt Out committee) unless they just wanted to mess with me for some reason. There was nothing to find, as I was very cooperative, maintained a good relationship with my examiner, and had already provided full disclosure as if I was being civilly audited from the get go.

To those wanting to know about when they will hear from an Examiner. In the OVDP, it was a long delay from time of submission, until the Examiner contacted me. It was over 7 months, so if you submitted in August, and haven't heard anything, not to worry or fret. It is early in the game yet. When they get around to it, they will contact you. As Jack said, nothing to be gained by contacting them. Look on the bright side, it gives you more time to design and reflect on an Opt Out strategy, if that is appropriate for you.

If one failed to qualify because the submission is not accurate, complete or timely (and the taxpayer does not cure the problem), the taxpayer will be kicked out of OVDI 2011. The consequences kick out are (i) no assurance of avoiding criminal investigation or prosecution and (ii) no assurance that, upon civil audit, the civil penalty will not be greater than the civil penalty structure in OVDI 2011. And, I think that most practitioners believe that a person kicked out will be subject to civil audit (and some even criminal investigation), but I would suspect that in a resource starved agency, all kicked out may not be subject to audit or to an intense audit.

The taxpayer who is contemplating subjecting himself to kick out is thus giving up his criminal investigation / prosecution amnesty. Thus, it would seem to me that one who is in the program and is contemplating subjecting himself to a kick out should think seriously about completing the submissions properly and opting out. In theory the civil penalty is the same on opt out as on kick out, but at least he has solved the criminal investigation or prosecution risk.

Of course, by completing the submissions, the taxpayer will have to make submissions that, in effect, does 95+% of the IRS's audit work. Thus, the taxpayer has to file amended returns that would not be required in an audit and those amended returns have to correct the offshore account income omissions and all other problems related to the audit. Whether or not, in an audit, the IRS would be able through a regular audit to (i) locate all offshore accounts and other assets and (ii) identify any other problems on the return years may be problematic to a resource limited agency. So, in that type circumstance, a taxpayer might well get a better civil dollar cost on kick than on opt out.

One can assume that in an audit following the kick (perhaps even the opt out also), the taxpayer will get a standard summons for the foreign bank account records and will act at his peril if the response to the summons is not complete. So the opportunity to have some of the foreign accounts that the IRS did not otherwise know about drop off the radar screen may be problematic. But, if there are other problems on the return, they may not be discovered on audit. On the other hand, if there are such other material items when coupled with the offshore accounts, the taxpayers prosecution risk profile may be too high to attempt to exploit the kick out audit which foregoes the relief of no criminal prosecution.

Making the judgment calls for making a good kick out decision and then navigating the mine field of the audit is not for the faint hearted.

While you described some type of intentional kick out I had in mind an unintentional kick out. After I had made my submission to OVDI I have some doubts that there are some foot-faults that may or may not lead to a kick out. After reading some posts on your blog I found some other folks with several other foot-faults; i.e. recreating account statements from emails, not including all accounts in the VD letter but later adding them on FBARs because they did not generate interest in order to be included in the VD letter, not including initial PFIC, etc... And since OVDI 2011 appears to be more rigid and upfront in the submission requirements than OVDP 2009 when submissions were presented upon request. Several folks did mention that IRS is not looking for foot-faults but that was in 2009 and they may look for them in 2011. Of course I am willing to cooperate further with IRS to make any changes or submissions as requested.

My amounts are small to potentially initiate a criminal prosecution and if they do that could mean the end of my life in USA since I am not a citizen. Mostly I am concerned for my family.

I guess I might end up with a willful penalty but what I am really afraid is of course prosecution.

Even in OVDI 2011, I don't think the IRS is looking for foot-faults. So, assuming you want to stay in and do some reasonable level of compliance with the submission request, I think you will be able to complete the process.

If you stay in until the last step -- the step where you are given an opportunity to opt out rather than accept the program civil penalty structure -- you will avoid the risk of criminal prosecution and hence your status as a resident alien should not be jeoparadized.

What everybody is “forgetting” about all this Fbar Fatca, 8938 mess: foreign governments (and foreign banks) will demand, in the remote case they will pay any attention to the US rumblings - Switzerland is irrelevat - full RECIPROCITY, i.e, they will want to know the income, funds, pensions, etc of all their Americans residents have in the US and abroad. American residents in most foreign countries should be taxed on their worldwide income as well. Now, they will probably have to start disclosing their bank account holdings in the US to foreign goverments too. And foreigners (non Americans) conveniently banking in the US will have their IDs disclosed to foreign governments. What goes around comes around. I know Asian and South American tax people (close friends) that are salivating already.

This is not a case of OVDI but silent disclosure. One of my friend opted for silent instead of OVDI and he amended tax returns from 2003 onwards (along with the FBAR). IRS, however, only applied the tax returns from 2008 onwards and returned back liability checks for 2003-2007. Is this fair? Does this mean the silent disclosure working?

"IRS, however, only applied the tax returns from 2008 onwards and returned back liability checks for 2003-2007. Is this fair? Does this mean the silent disclosure working? "

Legally, IRS can only assess tax for three years due to statute limitation. When your friend made a quiet disclosure (QD), he did not sign a wavier of this statue limitation, thus... IRS can only assess his tax for three years.

This may not be a good news for your friend at all, because that IRS returns liability check for 2003-2007 also means IRS has rejected this so called QD. IRS may move him to a normal/formal disclosure at the same time. I hope he won't get any worse treatment than OVDI.

All will agree that I should have asked this before submission, but it will still help to know your opinions. It will be also of interest to those in same situation. I was reading IRM 4.26.16.3.2 and noticed that definition of financial account is different than given under instructions on FBAR form (page6).

Both definitions almost match EXCEPT an important exception mentioned on 4.26.16.3.2 (D)which states "D. Individual bonds, notes, or stock certificates held by the filer are not a financial account". This exception is missing on FBAR instructions. In my case I had several old Equity share (stock) certificates which I have reported both on FBAR, penalty statement and also dividends on Returns. I wonder whether they were not reportable and it is a mistake I made. Will appreciate your opinion.

Hi PK - Individual stocks (unless you control the company) if owned in physical form are not reportable on FBAR. However, they are still foreign assets and if you had not reported dividends previously on your tax returns the FMV of the stock would be included in the base for penalty calculation. The same applies to bonds. Bonds are not reportable on FBAR but are included in penalty base if you did not report interest on bonds. I have a national accounting firm representing me in OVDI and based on my and their reading we have included both stocks and bonds in the penalty base but they are not reportable on FBAR. Hope this is helpful. Btw no problem if you reported them on the FBAR its not as if you can be penalized for disclosing more than what you should have.

Inside OVDI, even home with rental income of noncompliance will be included in the base penalty. It indicates that IRS just want to rip off as much as they can inside OVDI.

You can certainly make "reasonable cause" for not filing FBAR for that part of your "offshore" holding.

The problem is that there is very little room to argue inside OVDI unless you choose to opt out. If your problem is purely of this, then you should really consider opt out if OVDI wants to impose penalty.

QD strategy deployed: checks for penalties and interest, amounts determined by the IRS of course, were accepted for the 2003-2008 period,then letters sent by the IRS stated that everything was OK, "thank you for your cooperation", etc, etc (all this 2 1/2 years ago). Now what?

"QD strategy deployed: checks for penalties and interest, amounts determined by the IRS of course, were accepted for the 2003-2008 period,then letters sent by the IRS stated that everything was OK, "thank you for your cooperation", etc, etc (all this 2 1/2 years ago). Now what? "

Congratulations !!! You have screwed IRS big time!!!

This might be the case before OVDP/OVDI were in place. So IRS might have treated this as just normal amending.

Hard to believe they could have taken for back 5 years penalty/tax due unless the under report was over 25% of the AGI.

Not sure the initial answer got through. FBAR forms were sent in parallel to the amended returns. No FBAR penalties were assessed. The tax attorney in charge of the process has informed his client that the acceptance of the checks and the issuance of the "thank you" or equivalent letters by the tax authorities were sufficient for his client to consider his case closed. Maybe it is just wishful thinking but the tax attorney in reference has stated that everything is now 100%...

"The tax attorney in charge of the process has informed his client that the acceptance of the checks and the issuance of the "thank you" or equivalent letters by the tax authorities were sufficient for his client to consider his case closed. Maybe it is just wishful thinking but the tax attorney in reference has stated that everything is now 100%... "

I hope he is 100% okay (I do mean it) and this is the way it should be.

However, I should say acceptance of checks do not mean anything. When you send a check to the Treasury it will be cached and your account (with your SSN) balance will show that money, even if you are not supposed to send any money (say you do not owe at all).

As for "thank you", that may only mean "thank you for letting us know". I would say 100% is real after 6 years of FBAR statute of limitation.

Again, I do wish he is 100% free, this is the way should be to all taxpayers who are trying to make it right after knowing wrong!!!

obviously, there could not have been any penalty for 2009 and 2010 if forms were filed for 2003-2008 :-).

Yes, the case might be closed (or might be bureaucratic mixup). But unless sums are large, and the IRS goes back to take a second look, the case is likely closed. There are 3 or 4 years open for FBAR purposes, so to be absolutely sure that time would have to elapse, but as each year passed, max penalty decreases.

Inside OVDI if the CPA wrongly advised the taxpayer on inclusion of addinional income that could be considered taxable for the years covered under OVDI application, how can the taxpayer fix this issue. Is it better to amend the amended returns or wait for an agent to be assigned and then inform the agent of the issue.

I have been thinking of "opt out" in case of IRS imposes base penalty on RRSP.

This may lead to a full scale of audit -- I have no problem at all. And in fact, I will be happy to cost IRS resource/money when such an agency's mission is to rip off taxpayers with no regard moral standard (I just can not see any moral ground to punish 25% on retirement plan which is in no way for any kind tax evasion, and it is just a click on f8891!!!)

In case of opt out, the tax due, interest and accuracy should be the same as those inside OVDI, the only difference (uncertain part) is FBAR penalty. Is this penalty set by the court ? Say if IRS wants to impose 10K/year for 5 years, do they have to go to court to have such a judgement ? If so, that will be a good news to me too, not because I can win in the court, but I have a chance to cost IRS resource/money to get my $50K or more.

When the government choose to be the enemy of its taxpayers, what do they expect ?

If I lose $1 at the cost of IRS $2, I consider it a victory.

I had a bad dream of IRS coming after RRSP, and I am in Kamikaze mood now.

ij,exactly that is what we need to do IF the service is inflexible. If 50-75% of the 12000 people opt out imagine what will happen. Instead if the Service is reasonably flexible it would atleast help them in getting more fence sitters in. I do not want to give all my money to a robber without a fight even if i get mauled in doing so.

"ij, the tax penalties may be lower outside OVDI, because only 6 years could be considered at most, and maybe only 3. On the other hand, they may include RRSP earnings also. "

Tax penalty is legitimate, and I am very well deserved. I don't mind if going back over 100 years -:)

Penalty on RRSP is rather evil, so is to all other offshore retirement plans. IRS can always impose tax when it is taken out. Or at least it should be a different kind penalty as those funds have real tax issues.

"ij,exactly that is what we need to do IF the service is inflexible. If 50-75% of the 12000 people opt out imagine what will happen. Instead if the Service is reasonably flexible it would at least help them in getting more fence sitters in.I do not want to give all my money to a robber without a fight even if i get mauled in doing so. "

While we are fighting a bloody war (say 50% of 12,000 opt out) the other 120,000 (yes I am talking about those who are still in hiding) will get away with all the trouble (very easy for immigrants to get rid of the hot offshore money).

I did not do Quiet Disclosure. I submitted the amended returns to Austin on Aug 30th with OVDI package. I amended other years as well because of other issues not related to OVDI, but I submitted them to regular amending process not OVDI. So I called to check on those returns and found out that my 2010 (OVDI) was given to examinations unit on October 11th and I should expect a letter within 45 days. I was transfered to talk to examinations unit but they told me I should wait for a letter.

My CPA did a minor mistake on 2010 return. I am thining that could be the reason.

This is related to question asked by PK on 23rd Oct about reporting individual stock certificates on penalty statement and interest/dividend on amended returns, where some bloggers have opined that they are reportable if income was earned on them, i.e. Interest/dividend was paid.

Will the same principle apply to NSCs? Those from India will know that it is a Govt issued certificate meant for residents only, having maturity of 6 years. What if NSCs were purchased before coming to US and matured after becoming resident here. Since terms and conditions of scheme, very clearly state that "benefit of investment in NSC cannot be repatriated outside India" will entire maturity proceeds be excluded from income in U.S.? OR Maturity minus investment be treated as income in U.S. OR entire proceeds will be treated as income? Logically if interest cannot be repatriated to US, then can it be treated as income?

And how about the value of NSCs themselves, were they needed to be included in penalty base?

I understand that there are several immigrants from India in OVDI and may have been holding NSCs when they arrived and answer to this question will be very helpful to them too. Have their CPAs opined on this question?

GM - I am from India and in OVDI and all my NSCs were purchased before I came to the US.

My CPA told me that NSC's are to be treated like Original Issue Discount on bonds. Original Issue Discount = Maturity Value of NSC - Principal invested. That difference is required to be recognized over the term of the NSC (6 or 6.5 years depending on the issuance). Therefore, you should include the annual interest accruals on your NSCs in the US income tax return. Btw this is no different from how you would account for the NSCs if you were an Indian Citizen resident in India - you have to accrue interest it cannot be on a cash basis.

Also, the accreted value of the NSC i.e. Principal amount + interest accrued (each year) should be included in penalty base.

Hope this is helpful. Btw there is no saying that this is the right way to do it as this whole OVDI is a bespoke process and who knows what stance the IRS is going to take as its the first time they are dealing with things like NSCs.

GMIt could be argued non repatriable income could bedeferred since anyways you will not be able to use itor exchange it into dollors. But there are some issues with making an income deferrable.My guess is most agents wouldnt even know the difference between repatriable and non repatriable accounts/funds since rupee is only a partially convertible currency.

Anonymous 2:43PM - Did your CPA opine about the principal. Whether that also would be income in the year of maturity? If purchase was made when you were Indian resident.

In my opinion neither principal nor interest should be treated as income because you cannot repatriate either. If you go to bank and request repatriation they will refuse, because it is not in NRE account. Most likely it is in NRO or resident account. And any amount that cannot be repatriated is not really an income. Which also means to use that "income" legally you have to make a trip to India!!

Yes, NSC's have to be treated like OIDs, or CDs, i.e. the interest has to be paid yearly in tax. Principal is most definitely NOT income.

As far as repatriation goes, that is largely irrelevant (although occasionally tax can be deferred on so called blocked money) -- but these days its not that hard to get money converted legally in India to $$ with RBI permission.

GM - My CPA took the stance that the principal is not taxable as its not income - its repayment of capital and capital receipts are not taxable under most tax jurisdictions certainly US and India.

Whether proceeds are repatriable or not is really irrelevant to the question of OVDI penalty calculation. I know thats not what you want to hear but the IRS is not going to provide any leeway on the question.

Friends looks like I have stumbled onto a great site where members are very knowledgeable and offer other new less informed members very valuable guidance. Thanks Jack for hosting this blog. It is performing a great service.

From reading above comments it appears there may be a few immigrants from India. I am wondering if there are any retirees (VRS, etc) who migrated to US after retirement. And received who received their retirement dues/arrears after coming to US?

If yes, then please let me know your opinions on treatment of provident fund (own contribution) which is deducted from employee's wages over the period of employment and returned to employee (with some interest) at time of retirement or after retirement due to processing delays. In India it is totally exempt from Tax. Wonder if and how it wouldbe reported on US returns. Will appreciate your valued opinions.

If you read IRS publication 575 page 10, you will see that if you take lumpsum distribution from your PF, your entire PF amount would be taxable as income. Read section "Foreign employment contributions while a nonresident alien"

This is what I did for my wife's PF. Reported whole amount as income. But for me amount was so small that I didn't bother researching further.

NO, foreign retirement accounts are not treated as income on 'distribution' (in general). Absent treaty provisions, the foreign retirement account is treated as just a regular account by the IRS. That means that you have to report income earned in the account each year and pay tax (only on income, NOT on principal). Distribution is a non-event as far as the IRS is concerned, it does not bring about any extra taxes

Thanks for your reply. I am not very sure if you are from India. If not, then few words about PF. Employee portion of PF collected over the years of employment through payroll deductions, is returned by Employer to Employee in one lumpsum, when he retires along with some interest that PF may have earned over the years. Hence there cannot be reporting of interest each year as suggested by you.

Thus I guess I will need to break the PF received between principal and interest and include interest in taxable income.

Wonder if there are more readers who have reported PF under OVDI/or are familiar. Will appreciate their comments too.

Your PF is similar to Canadian RRSP (except the treaty, and form 8891 to defer tax). However, if you have never cashed out your PF, and you did not open it after you became a US person, I think you should try to argue for 5% penalty instead of the penalty of 12.5%/25% imposed. This is listed in OVDI FAQ 52 as

"Taxpayers who meet all four of the following conditions: (a) did not open or cause the account to be opened (unless the bank required that a new account be opened, rather than allowing a change in ownership of an existing account, upon the death of the owner of the account); (b) have exercised minimal, infrequent contact with the account, for example, to request the account balance, or update accountholder information such as a change in address, contact person, or email address; (c) have, except for a withdrawal closing the account and transferring the funds to an account in the United States, not withdrawn more than $1,000 from the account in any year for which the taxpayer was non-compliant; and (d) can establish that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation). For funds deposited before January 1, 1991, if no information is available to establish whether such funds were appropriately taxed, it will be presumed that they were."

I think all the offshore retirement plans should be treated differently, it is so wrong for IRS to rip off these accounts in the name of enforcing tax compliance"... for those who came to this country late in their age, they really depend on their offshore retirements while this country has very little to offer.

It doesn't matter whether the money was returned to you or not. Every year the company must have given you a balance (or your bank/financial institution might have) or declared a dividend. Its not easy to grasp this, but as far as the IRS is concerned, a foreign retirement account (in general) is the same as a regular account. Any special status given to it by the Indian government is irrelevant UNLESS specifically provided for by treaty. So its just a regular account, and you should have been putting the 'income' in the account each year on your return. The distribution is irrelevant, because as far as the IRS is concerned, its like withdrawing money from a bank -- that is not a taxable event. If you did not include the income in the account, yearly, then --- well, the correct thing to do is to amend old returns and add that earning to your income.

I submitted my package August 20th but have not heard back anything. Its going to take sometime I think atleast 4-6 months from submission to even start processing as remember there are 3,000 cases that were submitted after earlier VDP that will get rolled into 2011 OVDI.

Have not seen "Just me" for some time. Really miss his valued comments. Jack has mentioned about the new IRM announced by IRS few days back. Will appreciate his comments on how these will impact OVDI participants.

My tax rep told me to submit the OVDI penalty calculation sheet with 5% and 25% penalty calculated on the same sheet as I may be in a gray area to qualify for the 5% (I opened the accounts with my signature but the source of funds was from my parents). Does it make sense on what was advised?

One of my bank accounts was a CD with 2 year term deposit. The bank gave me an interest summary on the account for every 2 year period although I could have withdrawn the interest with the funds at the end of 1 year. Does it seem like I should breakdown the interest for each year to amend the taxes?

Sorry I haven't posted anything regarding your question about the IRM changes. I am behind on my blog reading, as have been away traveling for the past week back in the Midwest. Need to catch up to see if I have anything of value to add. Probably not, as I think you over rate me, but thanks for your comment. LOL

To those wondering why no examiner contact yet on OVDI. I would just say, it took about 6 months on my OVDP, so not surprised.

btw... My US vacation is coming to an end, and heading back to NZ next week. I still have not received a finalized 906 or reconciliation of the money the IRS owes me. So 25 months after entering the OVDP, I am still not finalized. How is that for an effective program?? The TAS still is trying to prompt them along, but the wheels of this bureaucracy sure move slowly. I guess they have my money, and that is all that matters to them. Keep that in mine, on your OVDI, as you may be in for a long haul, especially, if upon consideration and advice, you decide to Opt Out rather than just roll over and take your medicine.

Best wishes. I wish sanity would return to the IRS, but looking at the most recent coverage in Canada, unfortunately more are just giving up their US citizenships rather than comply with the stupid IRS overreach. See http://bit.ly/rz7iLP Of course disappearing skilled immigrants will not even get this much attention as they walk down jetways heading home! No one in the US media is listening, or cares.

As Jack has said in the past, the IRS is probably not looking for minor foot faults at this stage. Something similar happened to me, and I just disclosed it when the Examiner finally made contact in the OVDP. I would wait until then, and don't try to amend now, as it will get too confusing for the poor IRS.

The best answer will be given by the OVDI Hotline, however the theory is that you can make amend your returns/disclosure letter anytime before end of OVDI. However the tricky part is when to do those changes, when an examiner is assigned or anytime before that. Doing changes before an examiner is assigned runs the risk of creating confusion and misplaced documents when sending in additional documents. Always keep copies of what you sent.

I have just recently noticed this call in blog talk show on FBAR and FATCA that is being hosted by an expat in Canada. You might want to check them out. They have had two shows so far, which you can download. It is a small effort, which we should try to support. If more begin to know it is around, it might gather a following... Here is the link.. I see they have a show tonight at 5:30P.

You mentioned that your vacation is ending and that you will be returning home. Does this mean that we will miss your invaluable advise, encouragement and guidance? You have been such an inspiration. Honestly, whenever I log, I look for your comments. You really stand apart.

Though you definitely need to take a break from this scene, am wondering if you will still keep in touch through the blog. If not, would you like to share your email address with us admirers who may need your words of encouragement and guidance in the days to come.

You are too kind! I guess I didn't realize that anyone paid that much attention to what I had to say, so I do thank you for your comments. If it helps someone out, or encourages them to not just be a helpless victim to the IRS juggernaut which has so over reached, that pleases me. I will stay tuned into this blog, as the subject continues to interest me, and Jack has taught me a lot. Actually more than I every really wanted to know! Ha.

Once I get back to NZ, I will continue post from time to time, if I have anything of value to add, or if anyone has a relevant question that I might be able to answer. I keep thinking, that I will let go of this eventually, and move on, but it still pisses me off how poorly the IRS has handled this whole foreign account FBAR issue. I just can't let go yet! I do risk becoming a bitter FBAR complainant tax payer, and that probably hurts me more then Commissioner Shulman who is probably blithely unaware of the emotional damage he has left in his wake. He will probably soon move on to highly paid lobbying job or head up the tax defense division of some prestigious DC law firm, and make lots of money advising Whales how to avoid the nets that he set while he was Captain of the Whaling vessel.

Government policies and accompanying unintended consequences are SOP, I guess. Just hate it when a reasonable objective of stopping tax fraud gets so convoluted that it so adversely affects Minnows in noble pursuit of a few Whales. Then you get the Canada effect, which I am sure you have read by now… http://bit.ly/rz7iLP.

The powers that be are either so stupid they can't see it, cynically don't care, or are so bureaucratically hide bound that they can not adjust their programs accordingly to do the right thing. It would be so very easy to separate the Minnows from the Whales at the beginning of the newest OVDI program without forcing all marine life through the same processing plant to make fertilizer out everything. To require those of you, who were not the objective of this entire OVDI enforcement effort in the first place, to go through a 2 year anxiety producing process with the loss of all the accompanying LCUs (in addition to the over-the-top penalties), and then have to either “opt out” or appeal to the TAS to get a more reasonable/favorable outcome, is just ridiculous to the extreme!!

I don’t want to degenerate into name calling for these people, but it is so tempting to come up with some colorful characterizations of those in charge of these policies. I have to think, they all know that they got it wrong, but just can't seem to find a simple path out of the “rules and reg” maze of their own design. At every turn, there is a Catch 22. There is a best selling book in this experience, I am sure! Just need another Joseph Heller with a good wit to write it!

Ok, here is your chance, if you are not too timid, to tell your stories to a reporter that has an interest. Finding one, has been hard to do, but now we do have one.

As you may know, or I have commented previously, I have been writing reporters regularly in response to their stories that miss a Bigger story when they just repeat IRS VD success claims about their amnesty programs without question or followup.

Last night I wrote the reporter Amy Feldmen, after seeing her most recent article in Reuters titled "Undisclosed foreign accounts? The IRS is coming." http://reut.rs/rJGaJC

As it turned out, ACA had also written Amy a couple days ago. They asked her to do a broader expose’ on the impacts of the IRS actions, and they got this response from:

"Thanks for writing. I actually mentioned in the piece that the law affects “Americans living overseas, including retirees, and immigrants in the United States who have maintained financial lives overseas.” In an earlier piece, while the amnesty window was open, I wrote about how many people were going to be surprised and caught off guard by this. If any of your members who’ve been snared by the recent enforcement would be interested in telling their story, I’d very much like to talk with them. It would bring a real human face to what can seem a rather abstract issue. Please let me know. Thanks again for writing.

best regards,Amy

Amy Feldman212-787-2794amy@amyfeldman.com"

ACA, in turn, just emailed the following to the 100s of testimonials that they have on record to encourage them to contact her:

“Recently ACA wrote to Amy Feldman, a Reuter's journalist who wrote and published an article on November 9th entitled, "Undisclosed Foreign Accounts, The IRS is Coming." ACA suggested that Amy do more to expose the personal, financial and economic damage that the current U.S. tax legislation, in particular on FBAR, is having and will have on individuals and families. She has written us a response and is interested in publishing a follow up article (see her email response to ACA below).

If any of who who sent us testimonials on these issues are interested in contacting Amy you may reach her at the phone number and email address listed below. We urge you to speak with the media about these issues as this is our best tool for bringing to light the destructive nature of current U.S. tax policy and FBAR filing requirements for overseas Americans.”

So now, we have the ear of a reporter, who has an interest, and can help shape a narrative that is counter to the IRS success stories we have endured. I encourage you to do so, even if you fear that this might bring IRS retribution. I am sure she can keep you as a confidential background information source if you don't want your name exposed. If nothing else, you can help her put a human face on what the IRS is doing.

My OVDI package was submitted in late August and still nothing. I am already planning my arguments to attack the IRS on bogus penalties, aggressive (incorrect) reading of my submission, and - based on other posts - what will apparently be a 906 agreement that brands me as a criminal. Forget that. This fight will last years and my objective is to make the IRS spend more time/money than they will ever collect from me.

Between work on neglected house projects and the garden, I plan on doing just that. However, I think I recognize a certain fatalism (passivity?) in NZ that is more accepting of government interventions than what Americans generally tolerate, and need to be mindful that. Maybe that isn’t fair or is too broad a characterization, (I love the Kiwis) but they get more worked up over the "All Blacks" defeats, then the latest Government outrage. You want you to stir them up, suggest that the Auzzie Wallabys are going to win the next Rugby game!! Now if I can tie that to FATCA, I have a winning strategy!

BTW, you all know the All Blacks won the recent World Cup in New Zealand, don't you. It was front pages in the NYTs, not!

A real example of differing acceptance levels, occurred recently when the government raised the GST from 13% to 15%. There were no T-Party rallies in front of the Beehive (US Capital building equivalent) nor attempts to shut the government down or threats to renig on its National Debt.

Also, the effective income tax rates Kiwis pay are much higher in NZ, than in the US, (no exceptions, 401k reductions, credits, house interest deductions, AGIs, etc to lower your taxable income) and yet there is not nearly the passionate debate on how they are "Taxed Enough, Already".

Then, Kiwis like any true Nationalist, aren't all that interested in what a Yank has to say, so will have to practice a little diplomacy to get attention, which is not my strong suit.

Still, I will be looking around to see what interest there is for a push back on FATCA over reach. If the Banks passively go along with the requirement, (btw, all but one are Australian owned) this will probably "out" a few more Yank expats who are either not aware of FBARs, or are just ignoring the subject. There certainly has not been much coverage of the issue in the NZ press that I have seen, but having been back in the States for a few months, maybe I have missed it. We will see!

I had to chip in here....1) "effective income tax rates Kiwis pay are much higher in NZ, than in the US" - Actually, Kiwi's tax wedge is only 18%, compared with US 29% (http://blog.oecdfactblog.org/?p=18)The true US tax rates are so complex as to be hidden. E.g. for living in US (Colorado) at $100K marginal tax rate- Fed income tax: 28%- SS/Medicare employee cont: 6.2%+1.45%- SS/Medicare employer cont (ultimately borne by the employee): 6.2%+1.45% - CO state income tax: 4.63%Total: 47.93%NZ equivalent marginal tax rate:- Income tax: 33%- ACC levy: 1%Total: 34%Also; 90% of Kiwi's don't need to file tax returns which is priceless!2) Income tax rate went 38%-->33% when GST went up. The whole thing was net give-back to the population (although the well-off got more back)3) FATCA is only on a few people's radar so far. Kiwi's are intensely sensitive about privacy and sovereignty. FATCA violates both. FATCA is a long way off and it will be gunned down by the locals before it gets too close.

Thanks for your comments. Let me clarify. I recognize comparisons to the States is difficult due to the ridiculous complexity in the US, but the comparisons I was providing was for an "effective" tax rate (ie taxes actually paid) and not a “tax table rate” which the examples you provide seem to indicate. Do I misunderstand you?

Of course, that comparison varies by state to state, where each state may or may not add on an income tax, but setting that aside, the comparison I was talking about was a federal rate.

When I say "effective" tax rate, I mean figured against a “Gross Gross income” in both countries.

In NZ, you do not get all the adjustments to income that lower your “gross income” significantly to reach a "taxable income" rate which is considerable less for most middle class tax payers. The “taxable rate” in the US is where you apply the “tax table rates” shown in your NZ examples to come up with what you are effectively paying.

In NZ, the “tax table rates” apply at a much lower income, and it applies to all income, not just earned income which allows Buffet to pay taxes at a preferred qualified Dividends and Capital gains rate which as you know is lower than an “earned income rate.” That is why he pays less, effectively, than his Admin Assistants.

I would dare say, very few median income Americans have ever calculated their real “effective tax rate” against their actual “total gross earnings”. If they did, they wouldn't have been so excited by Cain's 9-9-9 plan, or Perry's flat taxes, simple and appealing as they seem.

As you know, in the States, the difference between a “Gross Gross income” (you need to add back in the income deferred for 401K and IRA contributions), and your “taxable income” is significant.

So, for an apples to apples comparison, you want to figure “Gross Gross income” in the US, and then apply the Federal taxes you pay in the US to include Income, Social Security, Medicare on a Federal level to the equivalent taxes you pay in New Zealand against a “Gross Gross income” where you don’t have all those adjustments, defferals, deductions, exemptions, credits, etc.

I have done that exercise many times, and since I am essentially retired, with my wife working part time, our income now is in the US median range. I think it is average enough for reasonable comparisons, but if you make millions in earned income, my statement might not apply.

So, maybe I shouldn't have made a generalized statement based upon my own Median income experience, but for me, last year, my effective rate in the US, was 8.7%. Again that included all Federal taxes paid to include SS tax, Medicare levy, and Federal Income. On a similar gross in NZ, my effective rate would be 22.5%

So again, the effective tax comparison is.

In US... 8.7%In NZ...22.5%

Again, I stress, this is an apples to apples comparison on equivalent Federal taxes paid, (not a comparison of a “tax table rate”).

I have not factored in GST or Sales Taxes, but of course, in NZ, GST and taxes on gasoline are much higher than in any state in the Union. Property taxes are generally lower. And like you say, in NZ, the tax system is so simple, many do not even have to file a tax form. And, filing the complex forms in the US, does have a significant cost in lost LCUs, I will give you that!! :)

Anyway, that is my experience as to “effective” tax comparisons, and I do find taxes higher in NZ compared to my "effective" rate in the States.

You experience might be different.

As for FATCA, I hope you are right, that it will “get gunned down by the locals”, but quoting from here: http://bit.ly/nOJsoh

'The government is not necessarily in a position to influence US FATCA', Revenue Minister Peter Dunne says.

"People suggesting New Zealand ought to tell the US to "get stuffed" on FATCA were naive," McCalman said.

Re: Tax ratesI agree it is not easy to do a comparison of tax rates due to the different taxes, deductions, local taxing jurisdictions, wages levels, individual circumstances etc. Tax Wedge is the accepted way of boiling all the policy differences down into a comparable numbers for employment based tax. I personally don't care either way about how much tax I pay; I just want it to be easy to do.... minimising LCU loss along the way :). NZ wins hands down on that count.

Re: FATCAP. Dunne is right about not being able to influence FATCA. And McCalman is someone who's salary relies on people believing that FATCA is arriving and there is not option but to comply (therefore I question his statement's validity).

FATCA has being delayed for 12 months already; and it's not like banks were even working on implementing it. If it isn't watered down to the point of being irrelevant it will either be ignored, have lip-service paid to it, or bank org structures organised in such a way that only small isolated "FATCA units" deal with US securities and people who are willing to consent with FATCA disclosures.

What can we all do between the time we file the OVDI and when we first hear from the IRS several months from now? How can we spend the time productively preparing for the battle ahead? What resources should we be looking at? I know it is time to relax a little, but I want to be prepared to address any IRS requests, misconceptions, or counter arguments.

Ref your " I just want it to be easy to do.... minimising LCU loss along the way :). NZ wins hands down on that count."

You are absolutely right on that!

Also thanks for your reference to the tax wedge concept. I am not familiar with it, but maybe I should read up more to understand it. It is easy to make the mistake of applying one's person experience in the median income range and extrapolating from that. So, I do take your comments and points on board with due consideration and appreciate them. I am always learning new things!

Is there any interest among readers of this blog to start a discussion on when to opt out and when to not opt out. No one including lawyers really know what is going to happen when a person in OVDI opts out. Everyone is just guessing on how a taxpayer might be treated. So instead of guessing individually, would it be possible to share our logic and opinions about opt-out treatment scenarios? Or is this a dangerous game that can mislead a person into making a false opt-out (or not) decision?

Well, I can share with you what I did in the OVDP, and add a suggestion or two that may be of some assistance. Some are old points made previously, but will repeat here if someone has not read on other threads. Some comments are self evident, but I am trying not to assume anything about your current knowledge or expertise level. Also, I am writing from the self help perspective, and assume you haven’t turned your entire process over to a professional. You may still need expert guidance however. They can assess and bring a realistic appraisal of your chances of a better result. In the OVDP I was consistently naive and overly optimistic that reason would trump stupidity. It was a silly assumption, in retrospect.

1. I spent a lot of time trying to get my head around the legal definitions of "willfulness" “non willful” and "willful blindness" especially as related to the FBAR, as that is the instrument they are hanging these over-the-top penalties on. I am not an attorney, and never played one on TV, so my poor little non legal brain struggled with those concepts. If I were you, I would read every last thing you can find on this blog, where Jack has dealt with these issues extensively. I would then evaluate your own actions or inactions in context of what you learn. And, if you even remotely think you might consider the "Opt Out" option, I would be writing out your “non willful” arguments now. Make them part of any correspondence you have with your examiner. I did. She hated hearing it multiple times, in multiple letters, but I did not give her relief, even though she protested that she had no discretion. While that was certainly true, it helped to develop empathy for my later TAS appeal.

If you are not using a practitioner, this is one area I might consider paying for some legal guidance. What you think is “willful”, and how your examiner determines “willful”, probably will be far apart. I would be forceful on your “non willful” assertions, if you honestly think you were "non willful", especially in the context of the type of tax evader the IRS and the Justice Department were targeting. If that was not you, I would be making that point repeatedly and continually. I pleasantly, but firmly, reminded my examiner at every turn that I was a "Minnow, not a Whale," and I resented being lumped into the “one size fits all” penalty application of the OVDP. This was “not” a voluntary process, as the Quiet Disclosure (QD) was obviously not an option, and to do nothing was certainly “willful”, so I was trapped in a Catch 22.

2. If you have not done so, I would print out the entire IRM that deals with FBAR penalties. (http://www.irs.gov/irm/part4/irm_04-026-001.html)

Read and re-read until you are very familiar with the contents. You might increase the font size for readability, and be prepared to glaze over and doze off after a while. I had to keep going back over it, as I found it as dull as hell.

However, dull or not, if you were to go the "Opt Out" route, knowing the examiner guidance the IRM provides and the wide discretion that they are allowed, will be very important for you and your arguments. You need to be as knowledgeable of the IRM as your examiner, or maybe more so.

Also, related to the OVDI penalty structure, be sure to establish a clear comparison of the FBAR “in lieu of” penalty compared to the total tax failure you may have had, so you can constantly reference it in correspondence and communication. A ridiculous penalty comparison multiple, IE penalty 10 times tax failure (if that is the case) does have a fairness emotional impact when making an appeal for reasonableness.

3. Print out and read/re-read both reports which are linked on Jack’s Blogs dated 10/24/11, “Article on OVDI and Beyond - Highly Recommended”, and 11/09/11, “Excellent Article on Offshore Accounts - History and Future.” I would go to school on these two.

4. Re-examine your amended returns for all OVDI years. I assume you think that is all done. Maybe not. I would take the time to go back through each year, and look carefully for any errors or omissions that you might have inadvertently made in the rush to get everything in by the deadline. Think like an auditor. For every mistakes you made, no matter how minor plus or minus, I would create a list by year, and have them ready to disclose, even if the examiner doesn’t ask. It will help establish your forthrightness and cooperative nature. Plus, if you are going the "Opt Out" route, you then know you have nothing to fear from a full civil audit if the IRS decides to further waste their time, our tax dollars and your LCUs.

5. Brush up on your spreadsheet skills, if they are rusty. You will be receiving at least 3 paper forms from the IRS, which you will need to audit in detail, line by line, number by number. The best way to do this, is by re-creating the form in Excel, with the same columns and numbered line items, plus additional columns to show your audited differences with comments.

Your examiner will make mistakes, and I found it best to give that information back in exactly the same format they sent it to me. That takes time to do, and it drags out the process a bit, when they have to correct their errors and mail back to you. However, this isn't necessarily bad. In fact it could work to your benefit if you are still waiting for anecdotal evidence of “Opt Out” results before deciding what to do.

These worksheets are: A. 4549A Income Tax Discrepancy Adjustments Here is a example: http://famguardian.org/TaxFreedom/Forms/IRS/IRSForm4549.pdf B. An OVDI Penalty Calculation Worksheet C. An OVDI Payment Reconciliation Worksheet (B and C may not be standard to all examiners)

6. If you are considering an "Opt Out", be sure to closely review the procedures way ahead of time to know what to expect. See: http://www.irs.gov/pub/newsroom/2011_ovdi_opt_out_and_removal_guide_and_memo_june_1_2011.pdf

7. Finally, if appropriate, start writing appeals to Geinther, Shulman, Obama, your Senators, and your Congressman, with your reasons why the OVDI penalty structure and the cumbersome and lengthy process created should not be applied to a person of your type of failure. You will have to assess whether such appeal is correct and makes sense for you. You may not get any answers back. You may still have to pay the OVDI penalties, but don’t go silently into the night without these officials hearing your displeasure of their ill designed program. This OVDI was called a Noisy Disclosure for a reason, so raise the decibel level a bit!

One additional appeal: If your story is a sympathetic one, or particularly egregious example of outrageous IRS penalty over reach, please, please, please consider contacting:

Amy Feldman212-787-2794amy@amyfeldman.com

I will calling her from Australia on Saturday for a scheduled chat. Her last comments to me were:

“There’s been quite an outpouring of emails and phone calls from the ACA message, and I’ve been trying to sort through them all…......I do think this is very important story, and am quite grateful for those who are willing to tell their stories.”

And...

“I’m glad you’ve encouraged more people to contact me; it’s been pretty amazing to hear the stories.”

And one other consideration.... if you are one of those that got paralyzed by indecision on what was or is the best course for you now that the OVDP and OVDI programs are closed, or you just found out about it too late, and the future looks bleak,(especially for some of those long term or accidental expats in Canada) tell Amy. Those perspectives might be helpful for her to hear also.

JustMe - did you have to deal with superannuation in your disclosure? If so, how did you manage it - did you need to file 3520's ordid you take a treaty option? It is very unclear what to do with superannuation.

I just had a long phone conversation to day with Amy Feldmen. I have mentioned her previously above.

She is a reporter on contract to Reuters who has indicated an interest in our story.

Purpose of the call, was to discuss the impacts of the OVDP and OVDI programs on the Minnows, and add some perspectives to counter the IRS success narratives which conveniently overlook the many unintended consequences on middle class expats and immigrants who were not the target of the program in the first place.

I know she has already interviewed some others beside me, and I write again, to encourage you to consider contacting her. Unless someone puts a personal face, on this otherwise opaque story, we will never be able to counter the media impression that we are all Big Time Tax Evaders that are coming clean!

She seems quite interested in writing something about our struggles to be compliant without being ground into fertilizer. Don’t expect a long expose’, as she does have article constraints, however she is willing to put time into writing something. It has been long time and a hard effort to get any reporter attention or interest, and we should not pass up this opportunity. She has more than just a causal interest. “Amazed” is how she describes the stories she has heard already.

She will be continuing to interview many of the VD participants who have emailed or contracted her. She invites additional input. There is a learning curve here, as you can imagine. We have lived it, and it is all very simple and obvious to us now, but the story is complicated for someone first hearing about it. She does have a background in tax reporting, so is a quick study.

If there are any Tax attorneys that could provide anecdotal experiences about the type of clients you dealt with without divulging any privileges, or just help her understand past IRS practices regarding QDs and VDs that would be helpful too.

Regarding Superannuation. It sounds to me like you must be either an expat in Australia, or an Australian who is a resident in the US, wrong?

Fortunately, I did not have to deal with this. Neither me or my wife had any. I have to assume that Super would be handled the same way the RRSPs are handled in Canada, and so you might want to check the thread dealing with those as there might be some similar issues..

See Update on RRSPs in OVDI (9/26/11)http://federaltaxcrimes.blogspot.com/2011/09/update-on-rrsps-in-ovdi-92611.html

Also Phil Hodgen has a couple posts on this that might be helpful. I see a lot of comments there.

Whether it is called an RRSP or Super, it would seem to be to be similar issues.

It is a shame that these have to be even considered in the OVDI, as they certainly could NOT be considered a tax evasion vehicle. However, I don't know of any relief that is available except via the Opt Out. And when it comes to that, I have not heard of any results from the process yet. Unfortunately, there isn't a "Opt Out" clearing house where you can see what is happening or how tax payers are being treated. They are as opaque as Credit Default Swaps between Goldman and AIG. No transparency here! And no bailouts for failures either! I shouldn't joke about this, but what else can you do about a crazy crackdown that went after USB type evaders, and is now sweeping in foreign retirement accounts of expats or immigrants into a penalty process. There is no limit to how low the IRS will sink to extract revenue from Minnows, I guess. It just defies all reason and logic, but I am preaching to the choir. :)

Most immigrants' retirement plans (accounts) were opened before they had become US persons. So I strongly suggest all immigrants with offshore retirement plans (RRSP, Superannuation etc) argue for 5% penalty which IRS list on its QA.

IRS can not so narrowly defined the term that "the accounts were not opened by the taxpayers" --- all immigrants were not US taxpayers before they moved to US, so retirement plans/accounts were not opened by the taxpayers.

We have a good shot on this retirement plans and I hope TAS would come to help.

I would not be surprised someone might takes his/her own life if this tiny retirement had been confiscated by IRS simply for missing some obscure papers -- this person could just be me !!!

"Consider how small the risk was before entering (of a minnow being caught and prosecuted)."

I disagree. I have opted out of the 2009 VDP. The world is a different place from when I entered the VDP. No one knew anything about what would happen to whom and what the risks were; not the participants and most certainly not the tax attorneys. Things are much clearer now. Of course attorneys are still screaming for everyone to do a VD, but they have no incentive to do anything other than that (that hasn't changed since 2009).

We'll see how the post-opt-out process goes. I'm now confident that everything will be resolved in much more satisfactory way that the 20%-of-high-balance outcome.

Moby, your decision to opt out was based on what criteria? Was there any signals from the IRS to opt out? You do mention that things are a lot clearer, can you please elaborate? Opt out process still doesn't seem transparent, maybe it is getting better now.

In my case, what Moby, ij and M said is valid. Moby’s words ring truest for me. I wish Moby luck and hope he will keep us informed about what factors motivated him to opt out and how the process goes.

I think it is a combination of all factors that has led me to where I am.

Moby is right. Lawyers and some accountants do push you toward voluntary disclosure. It covers you and them legally and generates money for them. My horror story on how I entered into OVDI has a lot to do with not understanding that.

Because I listened to lawyers, I have the proud distinction of helping Mr. Schulman inflate his success story statistics by being double-counted as a “tax cheat”. I got counted once as one of the 3000 that came in voluntarily after OVDP was over and before OVDI started. I entered VD because that is what my lawyer recommended due to the no negotiation stance of the IRS.

Even though I wanted to stay in VD as I thought there was more flexibility there, because in early 2011 my lawyers were so uncertain about how it would go if I did not enter OVDI, I entered OVDI. Since then I have been branded as one of 12,000 “tax cheats” who entered the program.

And that is how I gave Mr. Schulman the ability to count some plankton twice as successes in his tax cheat success story.

As for anger, ij also has a real point when he says that there is real anger at this nonsense being perpetrated on minnows. It is what is motivating me to consider opting out.

M is also right when it comes to low risk tolerance. If the costs of opting out will mount to more than my penalty, it is not something I want to do. So in that sense, I am a lawyer’s dream as I will generate more billable hours for them while they analyze my situation.

I wonder if I will also be a lawyer’s nightmare because I am currently doing what Just Me recommended and am spending my weekends going through the IRM and drawing up lists for my lawyers for each IRM number in the 4.26 and 20.1 series to show them how I think it applies to me and what documentation I have to support it. As I do not want to experience the disappointment and frustration that Just Me went through when defending his own case, I figure it is better to get a legal opinion now. Ultimately, this action has a lot to do with risk.

I don't know exactly what Moby is thinking, and hopefully he will share. The one thing that I see that is clearer, and significant I think, is the recent changes to the IRM related to appeals. Re-read Jack’s blog

At least now it is clear, it seems to me, that if you Opt Out, and if the agent doing the civil audit still does not apply discretion in an appropriate manner, you have an appeal outlet.

If agent discretion in the Opt Out is applied like it was with my TAS appeal, then I would take encouragement, as it did represent a reduction that was allowed under IRM discretion.

If that discretion isn't applied, at least now you have an Appeals avenue which might represent even a more reasoned assessment of appropriate penalties then just the “one size fits all” or the maximum penalties possible from a civil agent not applying discretion. This would be especially important for those over-the-top FBAR penalties where the amount is many multiples of the tax failure.

Then of course, even if the Appeals goes against you, the IRS can only assess the FBAR penalty by referral to the DOJ and suing in Federal Court to obtain a judgment. Look at the current court activity, and the type of cases Jack reports here. Ask yourself, what is the likelihood that a DOJ attorney would expend all that time and energy to take a Minnow that far?

Of course, my assessment has been naively wrong so often by trusting in reason, logic, fairness and justice, I would take this for what it is worth. :)

That said, there is a ring of truth in what “M said” said. Minnows are risk adverse and pay a high price as a result. Cynically, the IRS probably knows that, and so quite happy to take the “revenue” without twinge on the collective conscious.

However, I am fervently hoping Moby will provide the evidence that the Opt Out is not just a gotcha procedure. There really is fairness. Maybe the IRS can do the right thing, even if the process is onerous and expensive in LCUs. We really do need a clearing house of Opt Out results for all of us to see so we aren't just guessing. Justice needs transparency, even in the bowels of opaque Opt Out procedures.

Criteria: I was a recent immigrant with only 2 years non-compliance, and only due to my immigrant financial affairs. It think this gives me a case worthy of sympathy. I have nothing to fear from a standard audit as there are no previous years that could be audited.

Signals from IRS on opt out:Nope. I unilaterally opted out once I got the 906 with 20% high-bal penalty; I didn't ask them whether it was a good idea and they weren't offering to tell me. Since opting out they've indicated (in not so many words) that it was a good idea (in my case).

Things that are clearer:1) Flexibility is available. Just Me has proven that with effort and LCU expenditure, a better deal can be got (Thanks --> Just Me)2) It has finally become obvious to large numbers of people that the OVDP is unfair and illegitimate. By this I mean that the Canadians have woken up to what is being imposed on 1M+ of their population. I think this is the real gamechanger. I'm not going to go into why this a huge deal now; but the OVDP is not a dirty little secret like it has been. I think wide scale nastiness by the IRS is now harder to do; I think they'll be looking to show how nice and reasonable they can be (but only once people opt out).3) I think it is now clear that tax lawyers are good for highlighting stuff going on, and technical things but they're awful for giving advice about what you should do. Basically, they at least as clueless as we are but just don't want to admit it. I now take this to heart whenever I read anything about OVDP stuff written by a lawyer, including whether to opt out or not.

Opt out transparency:That is still entirely unknown and opaque. I suspect that they are trying to close out as many people as possible under the 20%-of-high-bal deal before processing the opt outs (I think they want to minimise the opt outs). For all I know I am the first.

This is highly speculative on my part. I could be wrong. I feel like I should opt out but there is no laundry list of criteria. 20% of high-bal is certainty, but it's too expensive for me. I'd rather battle it out. I have English as a first language (I really feel for those who are doing this that aren't native English speakers) and I write complex documents for a living so I'm quite happy churning out 20 page letters on how the IRM should be applied. Also, I don't live in the US any more and 10,000km of distance helps me think more clearly. I have no advice to offer anyone other than my own thinking on the matter.

BTW: It has since occurred to me that the irrevocability of the opt out is more of a problem for the IRS than it is for us. Why? Once that bridge is burned the taxpayer is going to fight like a cornered rat because they have no alternative; another reason for them to go easy on us.

Moby great analysis. I do agree with you that irrevocability of the opt out actually hurts the IRS more than the tax payers. Its game theory - especially in the case of immigrants and expats the IRS is not going to risk collection in a court. Similar to your case I have only 3 years of non-compliance (I came to US on a temp work visa).

Thanks for that good analysis of your decision process. Like you say, you can’t really give advice. Each person has walk their own path and work through their own decision tree. However, it really helps to share how you have thought out what you are going to do.

Thinking back on it, sometimes I felt pretty isolated deciding on my own what course of action was best. Attorney advice while helpful, did conflict, and without personal stories of what was happening with others it was hard to know what to do. At one point, it was 50/50 whether or not, I was going to be forced to roll over, and at great personal sacrifice sell a lot of my retirement funds to raise the penalty. I would have loved to have had the thoughts of someone like you who had gone before me. So, to the anonymous readers pay attention, as this is a great resource for you as you make your own decisions.

I know there are other Opt Outs in progress. It is frustrating that we don’t know how many, or you can't see or watch their process with some degree of transparency. It is in the IRS self interest to keep them hidden, I think. I do concur, that the IRS wants to keep as many inside the VD as possible paying the full 20% or 25%. How else do you explain them removing FAQ35? My examiner even implied as much with her inference that others were just writing their checks when the 906 arrived and paying up. Why was I being so difficult? She sent me four 906s in all. I got a small amount of pleasure out of that little administrative obstruction! She worked hard at her job, so maybe I should feel bad. And as I have said previously, she indicated that her entire caseload of 25 were Minnows. At least that was my understanding. They were not the intended targets of the program.

Now that you are at this stage in your decision process, I bet Amy Feldman would be interested in your story. I can see you wanting to remain anonymous, until complete, but providing the background to your discovery and your decision might be very helpful for her. Your call, of course, but I would encourage you to contact or email her if you can see your way clear.

I have provided her a lot to digest to help understand the history of these VD programs and the many unintended consequences of their application. I have also including the various highly legal Special Reports that Jack has provided, as well as the personal 'non technical/legal' aspects as a “normal” person experiences them. Your story would enrich that side of the equation, which I would help think balance whatever story comes out of this.

Think it over. You are in for a pound now, so a little light in the media might help the other Minnows struggling with their own decisions in the OVDI.

I have given Amy my story and contact details, so the ball is in her court. She may have more compelling stories than mine on which to base her article, but she is welcome to work with my story if she sees fit.

I do want to continue to speak up and help people if possible. I am very grateful for the information that you've published and that helped me make the decision to opt out. I feel that I have a moral obligation to continue the tradition that you started. I'm wary of compromising my own position but I feel I have a certain degree of latitude, more than most in fact. I consider the most insidious aspect of the VDP is that the particpants have been largely cowed into silence (I certainly have been). As far as I can see, people have understandably wanted to avoid drawing the ire of the IRS. I think this allowed the real story to go untold, the IRS to control the media narrative ("wealthy Americans hiding money in Switzerland"), and essentially doing a divide-and-conquer number on the expats/immigrants. I've been overjoyed with the Canadians screaming en masse, writing to their MPs, getting their story in the papers, flooding their online forums and provoking responses from their politicians. I've always liked Canadians; now I just love 'em :-)

Yes, the backlash in Canada has very much been encouraging. What has been discouraging, is how little US media attention it has gotten, but of course, everyone is caught up in the Super Committee grid lock, GOP presidential campaigns, just popular culture stuff and shopping.

There are other things we can learn from Canada, like how to deal with the debt downgrades and deficit spending. This was a good special report if you haven't seen it. Lessons for America from Canada.

http://reut.rs/rEFzBB

If we can't learn from that recent history, then we certainly won't learn from Canadian out cries about overboard IRS tax evasion crackdowns.

BTW, just happened on this from Jerusalem Post. This is how they are constructing their own version of a VD program. Notice, that there doesn't seem to be the "One size fits all" approach. There will be "a civil-tax assessment, which may be by means of agreement with the applicant." Also, "The tax according to the assessment will not bear interest or fines. In additional, the panel may grant relief regarding indexation (for inflation) of the tax, and it may even cancel the indexation."

Humm, that sure doesn't sound familiar to anything the IRS did, does it?

I am sure there are problems with their program too, but maybe they are learning from IRS mistakes, or maybe they are just better and smarter. At least there is a front up review process that seems to do some winnowing, unlike the OVDI and OVDP, which just assumed all were egregiously willful and knowing Tax Evaders and Cheats. No gotcha FBAR penalties.

http://bit.ly/tVwOzb

The article end in the summary:"The temporary VDP is generally worth considering in applicable cases if an Israeli resident has a tax skeleton in the closet. The procedure not only offers immunity from criminal sanctions, but also immunity from interest and penalties."

Wonder what would have happened if the IRS had taken this approach? We will never know.

On a side note, I bet a lot of these unreported funds and assets are held in the US! That is the other Tax Sheltering Haven that the IRS doesn't like to talk much about! LOL

Are the 25% or 5% penalties for failure to file FBAR form only OR is it also the additional reason of failing to file taxes for the interest income?

As I interpret FAQ 17, if someone reported all taxes but failed to file FBAR, then no 25% or 5% penalties.

So is the issue really FBAR or is it taxes due.

If someone was a 2nd or third account holder on a bank account, never reported in FBAR nor paid taxes since the person was not the owner of the account, can that account get into the base penalty since there is no taxable income or can it be included due to failing to file FBAR?

The best way to think of the OVDI 5% and 25% penalties, is that they are "in Lieu of all other penalties" (one size fits all) that might normally be applied. The most significant of these being the FBAR penalty regime. That was the hook (statute) they hang all their penalty structure on and built their program around. It provided the most severe and draconian penalties imaginable as the club to force compliance. Their thinking is 25% is less/better than 50% maximum, so you should be happy, right?

Also, and not to be overlooked, for the overt UBS type Evader, like the IRS was targeting, this penalty is also "in lieu of" criminal prosecution. Given the nature of indictments and prosecutions Jack posts here, for them this “in lieu of” penalty is a GREAT deal!! Although not as great of a deal as another country, Israel say, might have done to really increase compliance rates. It is still severe and punitive, any way you look at it. As we have stated many times before, for the Minnow, the "in lieu of, one size fits all" penalty really sucks! :)

Normally, (FBAR penalty aside) a penalty related to unreported income or underpaid taxes (now amended and reported in a QD) is just the 20% accuracy penalty and interest due for late payments. I say 'just' advisedly. In normal situations not involving foreign "offshore" accounts or criminal behavior, your penalty might "only" be these, and could even be less, like it Geinther's case. 'Reportedly' he did not even have to pay the accuracy penalty for his underpayment, as that is subject to agent discretion. I don't know if that is factual or not, but that is what I understand from what I have read, so take it for what it is worth.

Regarding your last question..."re 2nd or third account holder." I am not that conversant on that subject, so will be very reserved on my comment other than to say, “I think it can”, but maybe the answer is “it all depends”. I don’t really know, so others might be better able to speak to this issue.

You are probably from India and some of your relatives had your name on their accounts. I think you can seek protection under FAQ to OVDI which states that if there was no under reported income on an account, you would still need to file a delinquent FBAR along with other accounts for which there was unreported income but no penalty would be levied on the account for which you have a mere signing authority but no economic interest. I am assuming that you are participating in OVDI and you have some accounts where you are the first holder that had unreported income for which you will need to pay the OVDI penalty.

However, if you are just filing the delinquent FBARs now the IRS could take a different point of view and penalize you. You have not dislcosed enough facts to answer your question.

Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.